Payment plan agreement for an overdue invoice, with a template

A payment plan fits a specific situation: the customer accepts they owe the money, wants to pay, and cannot pay all of it now. Typically that is a short-term cash problem or a delayed payment from their own customer.

It is usually wrong when:

• The customer has not engaged. If nobody has replied to your reminders, the problem is contact, not cash. Find the right person first. Our past due invoice email templates cover that escalation.
• The invoice is disputed. If they think the amount is wrong, settle the amount first. A plan for a figure they reject will not hold. See our guide to handling an invoice dispute.
• The block is admin. A missing PO number or an invoice sent to the wrong person looks like a payment problem but is fixed with paperwork, not a schedule.
• Promises have already been broken. If the customer has missed several promised dates, a plan without a first payment is likely to go the same way.

You never have to offer a plan. Whether one makes sense depends on the amount, the relationship, and how long your own business can wait.

1. How much can they pay now? Ask for a first payment today or this week. Even a quarter of the balance changes the conversation.
2. What can they genuinely afford each period? Ask them to propose a schedule. A plan they designed is one they are more likely to keep.
3. When does their cash improve? If they are waiting on a large receipt of their own, set the dates just after it lands rather than spreading equal payments from today.

Keep it to one page. It should say:

• Who: both businesses' names, plus a contact on their side with authority to approve payments.
• What is covered: each invoice by number, date and amount, and the total balance. Say whether new invoices raised during the plan follow normal terms.
• The schedule: the amount and due date of every payment, including the first one. List them, do not describe them.
• How to pay: bank details or payment link, and the reference to use so each payment can be matched to the plan.
• Interest and fees: if your terms allow interest or late fees, say whether you are charging them during the plan, pausing them, or waiving them if the plan is kept. Rules differ by country and, in the US, by state and contract. Our guides to late fees on invoices in the US and late payment interest in the UK explain the general position.
• A missed payment: what happens if an installment is late. A common approach is that the full remaining balance becomes due and the plan ends. Whatever you choose, write it down and only state what you are prepared to do.
• Work in progress: if you still supply this customer, say whether work continues during the plan, and on what terms.
• Confirmation: a line asking them to reply to confirm, or to sign and return.

For a large balance, ask a lawyer to review your standard wording once, then reuse it.

Short beats long. The longer a plan runs, the more time there is for the customer's circumstances to change and for your balance to slip down their list. Use the shortest schedule they can realistically meet.

Some practical rules:

• Front-load it. A larger first payment, then smaller regular ones, protects you if the plan fails partway through.
• Match their cash cycle. If they are paid monthly, set installments a few days after their own payday.
• Use whole amounts and fixed dates. "$3,000 on the 5th of each month" is easier to keep and to check than a percentage.
• One plan per customer. Fold every overdue invoice into a single schedule so there is one balance and one set of dates.

A worked example

Say a consultancy is owed $12,000 on an invoice now 45 days overdue. The client says one of its own customers has paid late and it cannot clear the full amount this month.

The consultancy asks for a first payment and the client agrees to $3,000 this week. The remaining $9,000 is split into three monthly payments of $3,000, each due on the 5th, a few days after the client is paid by their own customers. The agreement says that if a payment is more than five working days late, the remaining balance becomes due in full. The consultancy decides not to add interest if the plan is kept.

The client confirms by email, and the consultancy logs four due dates, not one. The figures are invented.

Send it as an email or a one-page attachment.

Subject: Payment plan for [Invoice numbers]: please confirm

Hi [First name],

Thanks for talking this through. As agreed, here is the payment plan
for the overdue balance on your account.

Between: [Your business name] and [Customer business name]

Invoices covered:
- [Invoice number], dated [Invoice date], [Amount]
- [Invoice number], dated [Invoice date], [Amount]
Total outstanding: [Total amount]

Payment schedule:
1. [Amount] by [Date] (first payment)
2. [Amount] by [Date]
3. [Amount] by [Date]
4. [Amount] by [Date]

How to pay: [Bank details or payment link]
Please use the reference [Reference] on each payment.

Interest and fees: [e.g. "No interest or late fees will be added while
payments are made on the dates above."]

If a payment is missed: [e.g. "If any payment is more than [Number]
working days late, the remaining balance becomes due in full and this
plan ends."]

New invoices: [e.g. "Invoices raised from today are due on our normal
[Number]-day terms and are not part of this plan."]

Please reply to confirm you agree to this plan. Once confirmed, I'll
send a short reminder a few days before each payment date.

Thanks,
[Your name]
[Your business name]

Offering a plan

Subject: [Invoice number]: agreeing a way forward

Hi [First name],

Thanks for being upfront about the timing. If paying [Amount] in full
now is not possible, we're open to a short payment plan.

Could you tell me:
- how much you can pay this week
- what you can pay each [week / month] after that
- the date your cash position improves

I'll put the plan in writing for you to confirm.

Thanks,
[Your name]

Reminder before an installment

Subject: Payment [Number] of [Total payments] due [Date]

Hi [First name],

A quick reminder that payment [Number] of [Amount] under our plan for
[Invoice numbers] is due on [Date]. The balance after this payment
will be [Remaining balance].

Payment details: [Bank details or payment link], reference [Reference].

Thanks,
[Your name]

A missed installment

Subject: Payment [Number] of our plan: not yet received

Hi [First name],

Payment [Number] of [Amount] was due on [Date] under the plan we agreed
on [Agreement date]. I can't see it received yet.

Could you confirm today when it will be paid? Under the plan, if it is
more than [Number] working days late, the remaining balance of
[Remaining balance] becomes due in full. I'd rather we kept the plan
on track.

Thanks,
[Your name]

The plan only works if someone checks each date. Record each installment with its amount and due date, mark it paid when the money arrives, and keep the running balance visible. A statement of account after each payment is an easy way for both sides to see where things stand.

Follow up the same day an installment is missed, not at the end of the month. A missed payment answered quickly is usually a delay. One left for weeks is usually the end of the plan. If the plan does collapse, go back to your normal escalation route, which our guide to collecting unpaid invoices sets out step by step.