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When should I use a repayment agreement?

You can use a repayment agreement (also known as a ‘repayment plan’ or ‘debt repayment plan’) if someone owes you money and: 

  • you have sent them payment reminders

  • the debtor accepts that they owe you money, and

  • they are willing to make arrangements for the debt to be repaid

As a debtor, you can offer to use a repayment agreement if:

  • you owe money to a creditor

  • you want to repay the debt and want to make arrangements for the repayment, and

  • your creditor agrees to a repayment plan

The advantages of a repayment agreement

Entering into (or offering to enter into) a repayment agreement can be a useful way of avoiding legal action.

 If you owe money to someone, you should consider taking this proactive step to avoid your creditor taking action against you.

If you are owed money, you can consider offering a repayment agreement to allow the debtor to repay you over a period of time that works for them. Doing this may help you avoid costly and time-consuming debt recovery action.

What to do next?

If you owe someone money, use a Letter proposing payment in instalments to record your offer to pay off the debt in regular fixed instalments.

If, as a creditor, you receive such a letter and decide to accept the repayment proposal use a Letter accepting payments in instalments to agree to the plan.

If you want to formalise your agreement to repay debt in a type of a loan agreement rather than a letter, consider using a Promissory note. This is an unconditional written promise to repay a debt and sets out the names of the parties, the amount due, instalment amounts, provision for interest and the effect of late payment. For more information, read Loan agreements and promissory notes.

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