Payment Plan Agreement

Summary

This template payment plan agreement is for use by a seller of goods whose buyer is delinquent in the payment of outstanding invoices for purchased products. This template includes practical guidance, drafting notes, alternate clauses, and an optional clause. This template contemplates that the seller and buyer had a pre-existing contractual relationship pursuant to which the business terms of their arrangement were memorialized. This template also contemplates that notwithstanding the failure of the buyer to make payments when due, the seller wishes to continue the business relationship and continue to sell to the buyer (as long as the past due amount is paid, and certain other conditions are met). The seller will need to balance the repayment of the past due amounts against a continuing business relationship with the buyer (as well as the terms of that relationship in light of the past payment problems). This is not a mutually exclusive exercise, and any decision of a seller could be influenced by, among other things: • The ongoing and projected financial health and credit worthiness of the buyer in light of its current inability to pay on time • The importance of the buyer to the business of the seller in terms of product sold and revenue generated (e.g., represents 20% of the seller's manufacturing output or yearly revenue) • The ability of the buyer to purchase the product from another seller – and – • The size of the buyer and seller (e.g., a large corporation or a small local business) As with all business agreements, the outcome is influenced by bargaining power and leverage. Which party needs the other party more for the success of its business overlayed with the cost of doing such business (e.g., for a seller, the cost is the credit risk of not being paid, and for a buyer, it is the actual financial cost of any additional credit conditions imposed by a seller). This template can easily be adapted (with a few changes) to a situation where there is no existing contractual relationship other than the parties solely exchanging purchase orders and invoices. For information and resources on contracts for goods and services, see Contracts for Goods or Services. For a form of agreement, see Purchase and Sale of Goods Agreement. For a full listing of key content that provides an overview of several out-of-court restructuring options, including workouts, and liquidation alternatives to filing for bankruptcy protection, see Out-of-Court Restructuring and Liquidation Alternatives Resource Kit. For a treatise discussing this topic, see Collier Business Workout Guide P 2.06.