Copy of a Terms Letter

There are times when you don’t mind accepting a client’s specific terms, or you have no alternative but to accept them. But one problem that often arises when their part payments are made in good faith is they continue for two or three months, and then the payments just STOP.

When you allow them to do this, you wonder “when did I become a lending facility?” So why not charge interest and costs like a lending facility?

Often when you allow an account to be paid off, the profit that YOU make becomes null-in-void in the delay of payment.

Once a payment term agreement is made in writing, the debt cannot be disputed. The client has agreed to funds owing in a written statement.

If there’s a need to go to court, then you take action on the agreement, not what work you did that did not get paid. You’d have an iron-clad agreement that usually negates the need for a trial, and you’d apply for a summary judgment. This is when you ask the court to forgo a trial (as there are no grounds for a discussion) and to just have the amount awarded to you immediately.

A manager of a veterinary clinic once advised me that their major problem was that clients would bring their pets in and then once the work was done they would state, “Oh, I don’t have the money, I need to pay you off”. The vet said it would then turn into a life-long struggle in collecting the account.

To prevent this from repeating, we designed the letter below so the clinic could say, “Sure, just sign this agreement and that will be fine”. Their clients would read the letter and in over 90% of document cases they would reply, “Oh don’t worry I will pay it on VISA” or “OK, I will just pay on EFTPOS”.

Most of the time, the reason people pay off an account is because you let them.

In saying that, there are very genuine cases of people who want to pay off an account and will ask prior to the work being carried out. I have so much more respect for any person who is honest, up-front and who says, “Yes, I need my oven fixed but I do not have all the money to pay now, can I pay you off?”

A Terms Letter for when they ask to pay you off

The letter provided further below is only to be used as a guideline. What this letter does is put the FULL agreement in writing so that there is no misunderstanding later on.

How to use this letter

I have supplied a generic template. You just need to change the details of your debtor and all the costs.

You can change the fee structure on this and you can charge any reasonable account keeping fee and interest (reasonable interest is anything up to 15%). I would suggest the amount depends on the faith you have in your client.

You MUST always include the sentence, I sign this freely and without duress, otherwise the agreement can be disputed and the debtor can say “they forced me to sign it”.

You can also use this letter if you get into financial trouble. It can be sent to your creditors, and it shows credibility. If it’s used and monitored, then you never need to go further than this terms letter. It makes sure everyone knows and understands where everyone stands.

If the debtor is a PTY LTD company…

Then you must remember to add the following clause:

“I, (put the directors name/s), being the Director of (the name of the company) Pty Ltd also hereby personally guarantee the full payment of this account in accordance with Letter of Agreement and its full Terms and Conditions.”

If you like, you can put this on your letterhead rather than having to fill in the creditor details, but make sure all the written details are the same.

Include all debtors

You can add as many debtors onto each account who owe the money, but make sure that you add the following clause:

“We agree that we owe the debt in total of $3830.00 jointly and severally.”

This means that all parties are responsible for ALL the debt together, so if one disappears you can make the others fully responsible for 100% of the account. This is important as often people perceive that they are only responsible for an equal share. Also, make sure all debtors must sign the agreement if there’s more than one debtor.

Include “signed without duress”

Most importantly, you need a clause that states: “signed without duress”

Duress means they were forced to sign. So, by signing without duress, it means they freely agreed to your terms.

How long should you draw out a deal?

You should never draw out a deal any longer than 6 months. And make sure the amount is reasonable to you. A lot of the time, what’s offered upfront is usually half of what can be paid, much like going into a garage sale and offering 50% of the price you are willing to pay. So, if they offer $250.00 per month, then make it at the very least $400.00 per month.

Terms letter template