Payment Plan for Customers: How to Offer One (Template and Agreement)

A payment plan lets a customer pay what they owe you in agreed instalments instead of one lump sum. For an overdue invoice, a written payment plan usually recovers more than chasing the full amount: set an upfront payment, a fixed number of instalments with dates, what happens if one is missed, and get the customer's agreement in writing. Only add interest or fees if the customer agrees to them, and remember the GST timing: on an accruals basis you've already reported the GST on the original invoice, on a cash basis you report it as each instalment arrives. A copyable payment plan agreement and email are below.

What is a payment plan?

A payment plan is an agreement between you and a customer to split an amount into scheduled instalments. It can be offered up front when you quote a large job, or after the fact when an invoice is overdue and the customer can't pay it in one go.

The two situations work differently:

• A planned instalment sale. You agree at the start that a $6,000 job will be paid in three parts. You can invoice each instalment as it falls due, which also helps your GST timing (see below).
• A plan for an overdue invoice. The invoice has already been issued and the debt exists. The plan changes when it's paid, not what's owed. You don't need to cancel or reissue the invoice; you record the payments against it.

A payment plan is different from a deposit (part payment before work starts, covered in our deposit invoice guide) and from a retainer (ongoing fees for ongoing work, see retainer agreements).

Should you offer a payment plan for an overdue invoice?

Usually yes, if the customer is engaging and the plan is short. A customer who can't pay $6,600 this week may manage $1,650 a month, and a plan you agree today often beats months of reminders and a debt that ends up written off.

Offer one when:

• the customer has responded and admits the amount is owed
• they've given a believable reason (cash flow, a delayed payment of their own) and a realistic amount they can pay
• the plan can finish within roughly three to six months
• it's a relationship worth keeping.

Think twice when: the customer disputes the work (resolve the dispute first; our guide to invoice disputes covers how), they've already broken a promise to pay, they won't put anything in writing, or the plan would stretch past a year. In those cases a letter of demand is usually the better next step.

How do you offer a payment plan for an overdue invoice?

Make one clear offer in writing, with the numbers already worked out, and ask the customer to confirm by reply. Vague offers ("pay what you can") create more chasing, not less.

1. Confirm the total owed, with invoice numbers and dates, so there's no argument later about what the plan covers.
2. Ask for an upfront payment. Even 20 to 25 per cent shows commitment and reduces your exposure from day one.
3. Set fixed instalment amounts and dates: "$1,650 on the 1st of each month from 1 December 2026", not "monthly".
4. Make paying easy: BSB and account number, PayID, and the reference to use on each payment.
5. State the default rule: if an instalment is more than, say, 7 days late, the whole remaining balance becomes due immediately.
6. Get written agreement: a signed agreement for larger amounts, or at least an email reply saying "I agree".
7. Pause new work or credit until the plan is complete, or until it's well under way.

Payment plan template: the agreement

Copy this into a document or email, fill in the placeholders and send it for signature. Keep the language plain; the point is that both sides can see exactly what's been agreed.

Payment plan email template

For smaller amounts, an email the customer replies to is usually enough. Send it after a phone call, so it confirms what you've already discussed rather than springing terms on them.

A statement of account after each payment keeps both sides agreeing on the balance, and gives you a natural reminder point before the next due date.

Can you charge interest or fees on a payment plan?

Only if the customer agrees. Interest or late fees you didn't agree on in your original terms can't simply be added to an invoice afterwards, but a customer can agree to a reasonable charge as part of a new payment plan. Many businesses waive interest while the plan is kept up to date, which makes the offer easier to accept.

If you do charge, keep it proportionate to your real costs. Under the unfair contract terms laws, an unfair term in a standard form contract with a consumer or small business can be void, and since 9 November 2023 businesses that use one can face penalties. Charging consumers for extra time to pay can also bring consumer credit laws into play, so if you want to add interest or fees to plans for individuals, get advice first. Our guide to charging late fees on invoices covers what makes a late fee enforceable.

When you follow up a plan, the ACCC and ASIC debt collection guideline applies to businesses collecting their own debts, not only to collection agencies. Keep contact reasonable in frequency and tone, and don't threaten action you don't intend to take.

How does GST work on instalments?

It depends on whether you report GST on an accruals or cash basis, and whether the invoice was already issued. On an accruals basis, GST is reported in the period you issue the invoice or receive any payment, whichever comes first. On a cash basis, you report GST as each payment is received.

Worked example. Invoice INV-0388 was $6,600 including $600 GST, issued in September 2026. On an accruals basis, the $600 went in your July–September BAS, and the four $1,650 payments don't change it. On a cash basis, each $1,650 payment includes $150 GST ($1,650 ÷ 11), reported in the quarter you receive it: $300 in October–December 2026 and $300 in January–March 2027.

For a new job you know will be paid in parts, consider whether it's genuinely one sale or a service supplied progressively. If it's supplied in stages, invoicing each stage as a separate tax invoice keeps your GST in step with your cash; our guide to progress claims shows the layout. Your tax agent can confirm the treatment for your contract.

Should you send instalment invoices or one invoice?

For a new sale, you can either issue one invoice with the instalment schedule printed on it, or a separate instalment invoice for each payment. Separate invoices are clearer for the customer and give you a fresh due date to chase each time; one invoice is simpler but, on an accruals basis, brings all the GST forward.

If you issue separate instalment invoices, number them in your normal sequence and reference the agreement on each: "Instalment 2 of 4 under payment plan dated 3 November 2026". For an overdue invoice that's already been issued, don't create new invoices for the same sale. Record each payment against the original and send a statement instead.

Is buy now, pay later better than your own payment plan?

With a buy now, pay later (BNPL) service, the provider pays you up front (less its merchant fee) and takes on the job of collecting instalments from your customer. With your own plan, you keep the full price but you carry the risk and the follow-up.

BNPL is now regulated as credit: since 10 June 2025, ASIC requires BNPL providers to hold an Australian credit licence. That's the provider's obligation, not yours as the merchant, but it's one reason BNPL providers check customers before approving them. For an overdue invoice from a business client, BNPL isn't an option, so your own plan is the tool.

Looking for an ATO payment plan for your own tax debt?

If you're searching for a payment plan because you owe the ATO, that's a different process. The ATO lets businesses and individuals pay tax debts in instalments, and if you owe $200,000 or less you may be able to set up a plan yourself in ATO online services.

Business owners set it up through Online services for business, under the accounts and payments menu; sole traders can also use myGov, or ask their tax agent. Lodge any outstanding BAS and returns first, and see the ATO's payment plans page for the current eligibility rules.

What payment plan mistakes should you avoid?

• Agreeing over the phone only. Without a written record, there's nothing to point to when the second instalment doesn't arrive.
• No upfront payment, so the plan starts with the full amount at risk.
• Open-ended plans. "Until it's paid off" has no end date. Fix the number and amount of instalments.
• No default clause, so a missed payment just means another negotiation.
• Adding interest the customer never agreed to. It's unenforceable and sours the relationship.
• Reissuing the original invoice as new instalment invoices, which double-counts the sale and its GST.
• Not following up the first missed date. Call the day after a missed instalment; waiting a month teaches the customer the dates don't matter. Our guide to chasing overdue invoices has the reminder sequence.

This article is general information, not legal, credit or tax advice. Consumer credit and unfair contract terms laws can apply to some arrangements. See business.gov.au, the ATO or speak to a qualified adviser about your situation.

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