How do I set up a payment plan for an overdue invoice?
How to set up a payment plan for an overdue invoice
Short answer
A payment plan is the right move when a client genuinely can't pay the full balance immediately but is willing to pay over time. It's better than collections referral in many cases — you keep the relationship, avoid the cost of collections, and get paid eventually.
**When to offer a payment plan:** - The client proactively reaches out about difficulty paying (good-faith indicator) - The full balance is beyond what the client can pay in 30 days but manageable in 2–4 installments - You want to preserve the client relationship for future work - The collection cost or small claims filing would approach the amount owed
**Payment plan terms:** 1. Put everything in writing — email confirmation minimum, formal agreement preferred 2. Specify: total amount, number of installments, installment amounts, due dates for each, and what happens if an installment is missed 3. Add a clause that the full remaining balance becomes immediately due if any installment is missed by more than 5 business days 4. Retain your right to pursue collections or legal action if the plan is defaulted on
**Sample structure for a $900 overdue invoice:** - $300 due within 5 business days of agreement (shows commitment) - $300 due on [date 30 days later] - $300 due on [date 60 days later]
**Charge late fees on the plan:** If the original invoice included a late fee clause, state that late fees continue to accrue on any missed installment. This motivates on-time installment payment.
**If an installment is missed:** Send a notice immediately (not after waiting another billing cycle). Give a 3-business-day cure period. If not cured, proceed with collections or legal action as stated in the plan.