Arrears clause: Copy, customize, and use instantly
Introduction
An arrears clause outlines the conditions under which payments that are overdue will be handled, including interest, penalties, and deadlines. This clause typically specifies the timeline for payments, actions to be taken in case of non-payment, and remedies available to the creditor. It aims to ensure that payments are made on time and to detail the consequences of late payment.
Below are arrears clause templates tailored to various scenarios. Copy the one you need, customize it, and add it to your contract.
Standard arrears clause
This clause applies to overdue payments.
If any payment due under this agreement is not made by the due date, the amount due shall be considered in arrears. The [debtor] shall pay interest on the overdue amount at a rate of [insert interest rate, e.g., "5% per annum"] from the due date until the date the payment is made in full. The [creditor] may, at its discretion, suspend any services or withhold any goods until all arrears are cleared.
Arrears clause with grace period
This clause applies when a grace period is allowed before interest applies.
Payments not received within [insert grace period, e.g., "10 days"] after the due date will be considered in arrears. During this grace period, no penalties or interest will be charged. If the payment is not received within the grace period, the [debtor] shall pay interest at the rate of [insert interest rate] per annum on the overdue amount, calculated from the due date until payment is made in full.
Arrears clause with late fee
This clause includes a late fee for overdue payments.
If any payment under this agreement is not received by the due date, the [debtor] shall be required to pay a late fee of [insert fee amount, e.g., "$50"] in addition to any other amounts owed. The [debtor] will also be charged interest on the overdue amount at the rate of [insert interest rate] per annum. The late fee and interest will continue to accrue until the arrears are settled in full.
Arrears clause with payment plan for overdue amounts
This clause applies when the debtor is allowed to pay arrears over time.
In the event that any payments are in arrears, the [debtor] shall propose a payment plan within [insert time frame, e.g., "10 business days"] to clear the overdue amount. The payment plan must be approved by the [creditor] and will include regular payments of [insert amount] until the arrears are paid in full. The [debtor] will also be responsible for paying any interest accrued on the overdue amount at a rate of [insert interest rate].
Arrears clause with immediate action on default
This clause specifies immediate actions if payments are in arrears.
If any payment is not received by the due date, the [creditor] may, without further notice, take immediate action to recover the arrears. This may include suspending services, withholding goods, or initiating legal proceedings to recover the overdue amount. The [debtor] will be responsible for any costs incurred by the [creditor] in recovering the arrears, including legal fees and collection charges.
Arrears clause with suspension of services
This clause applies when services are suspended due to arrears.
If any payment under this agreement becomes overdue by more than [insert time frame, e.g., "15 days"], the [creditor] reserves the right to suspend the provision of any services until the arrears are fully settled. The [debtor] will be responsible for any costs or damages resulting from the suspension of services. Interest will continue to accrue on the overdue amount as specified in this agreement.
Arrears clause with termination for non-payment
This clause applies when non-payment leads to termination of the agreement.
If the [debtor] fails to pay any overdue amounts within [insert time frame, e.g., "30 days"] from the due date, the [creditor] may terminate this agreement with immediate effect. In addition to any amounts due, the [debtor] will be responsible for any termination fees, penalties, or other charges incurred as a result of the arrears.
Arrears clause with compounded interest
This clause applies when interest is compounded on overdue amounts.
Any amount that remains in arrears for more than [insert time frame, e.g., "30 days"] will accrue compounded interest at a rate of [insert interest rate] per annum. The interest will be compounded monthly and added to the overdue amount. The [debtor] will be responsible for paying the total arrears, including accrued interest, in full.
Arrears clause with automatic renewal for arrears payment plan
This clause applies when the payment plan automatically renews.
If the [debtor] agrees to a payment plan to settle arrears, the plan will automatically renew at the end of each [insert time frame, e.g., "quarter"] unless the [debtor] requests a modification. If any installment is missed, the full overdue amount will immediately become due, and the [creditor] may take steps to recover the arrears, including but not limited to suspending services or initiating legal action.
Arrears clause with notification and grace period
This clause applies when the debtor is notified before penalties apply.
If any payment is not received by the due date, the [creditor] will notify the [debtor] within [insert time frame, e.g., "5 business days"] of the arrears. The [debtor] will be given a grace period of [insert time frame, e.g., "10 days"] to settle the overdue amount. If the payment is not made within the grace period, interest will accrue on the overdue amount, and further action may be taken as outlined in this agreement.
Arrears clause with automatic interest on overdue payments
This clause applies when interest is automatically applied to overdue payments.
If any payment due under this agreement is not received by the due date, the overdue amount will automatically accrue interest at the rate of [insert interest rate] per annum, calculated from the due date until the amount is paid in full. The [debtor] will be responsible for all accrued interest, in addition to the principal amount owed.
Arrears clause with right to offset
This clause allows the creditor to offset overdue payments.
If any payment due under this agreement is in arrears, the [creditor] reserves the right to offset the overdue amount against any payments due to the [debtor]. The [debtor] agrees to allow such offsets to cover arrears, and acknowledges that the [creditor] may withhold any future payments until the arrears are fully settled.
Arrears clause with installment arrangement for overdue amounts
This clause provides for an installment plan to settle arrears.
In the event of arrears, the [debtor] may propose an installment plan to pay off the overdue amounts. The [debtor] shall pay [insert amount] per [insert frequency] until the full arrears are settled. If the [debtor] fails to meet any installment, the total overdue amount will immediately become due and payable.
Arrears clause with suspension of delivery for non-payment
This clause allows the suspension of delivery until arrears are paid.
If any payment under this agreement is in arrears for more than [insert time frame, e.g., "30 days"], the [creditor] has the right to suspend any further deliveries or services under this agreement until the overdue amount is fully paid. The [debtor] will remain liable for any costs or delays incurred due to the suspension.
Arrears clause with recovery costs
This clause applies to recovery costs for overdue payments.
If any payment due under this agreement is not made by the due date, the [debtor] will be liable for all costs incurred by the [creditor] in recovering the arrears, including legal fees, collection costs, and any other related expenses. These recovery costs will be added to the overdue amount and must be paid in full along with the original sum.
Arrears clause with notification requirement
This clause requires the creditor to notify the debtor of arrears.
If any payment is overdue, the [creditor] must notify the [debtor] in writing within [insert time frame, e.g., "5 business days"] of the missed payment. The [debtor] will then have [insert grace period, e.g., "10 business days"] to resolve the arrears before any further action, including interest charges or service suspension, is initiated.
Arrears clause with an automatic late fee
This clause includes an automatic late fee for overdue payments.
In the event that any payment due under this agreement is not made within [insert time frame, e.g., "30 days"] of the due date, the [debtor] will automatically incur a late fee of [insert fee amount, e.g., "$25"]. This fee will be added to the overdue amount and will be payable immediately, in addition to the original overdue amount and any accrued interest.
Arrears clause with escalation process for unresolved arrears
This clause outlines an escalation process for unresolved arrears.
If the [debtor] does not settle any arrears within [insert time frame, e.g., "30 days"], the [creditor] will initiate an escalation process, starting with a formal demand letter. If the arrears are still unresolved after the demand letter is issued, the [creditor] reserves the right to take further actions, including involving legal representatives or initiating arbitration or litigation.
Arrears clause with dispute resolution option for payment disagreements
This clause provides an option for dispute resolution in case of payment disagreements.
If the [debtor] disputes any portion of the overdue amount, the parties agree to engage in alternative dispute resolution (ADR) to resolve the issue. The [debtor] must notify the [creditor] of the dispute within [insert time frame, e.g., "7 business days"] of receiving the arrears notice. If the dispute is not resolved through ADR within [insert time frame], the [debtor] will be responsible for the full overdue amount, including interest and late fees.
Arrears clause with payment extension request
This clause applies when the debtor requests a payment extension.
If the [debtor] anticipates being unable to make the scheduled payment, they may request an extension from the [creditor] prior to the due date. The [creditor] may, at their discretion, grant an extension of up to [insert time frame, e.g., "30 days"] without penalties. If the payment is not made within the extended period, the [debtor] will incur interest at the rate of [insert interest rate] and may be subject to other consequences outlined in this agreement.
Arrears clause with interest cap
This clause applies when there is a cap on interest for overdue payments.
In the event of arrears, the [debtor] will be charged interest at the rate of [insert interest rate] per annum on the overdue amount. However, the total interest charged on the arrears will not exceed [insert percentage or amount, e.g., "10% of the original debt"] during the term of the arrears.
Arrears clause with reminder notification
This clause applies when the creditor sends reminder notifications for overdue payments.
If the payment due under this agreement is not received by the due date, the [creditor] will send a reminder notice to the [debtor] after [insert time frame, e.g., "5 business days"]. If the payment remains overdue after [insert further time frame, e.g., "10 business days"], interest will begin to accrue at the agreed-upon rate, and further actions may be taken as outlined in this agreement.
Arrears clause with accrued penalties
This clause applies when penalties accumulate on overdue payments.
Any overdue payments under this agreement will accrue penalties in addition to interest. The penalty will be [insert penalty amount, e.g., "$50 per overdue payment"] and will be charged immediately upon the due date. The [debtor] will remain liable for the total amount of arrears, including both penalties and interest, until fully paid.
Arrears clause with suspension of services for non-payment
This clause applies when services are suspended due to arrears.
If the [debtor] fails to make payment for any overdue amounts within [insert time frame, e.g., "30 days"], the [creditor] reserves the right to suspend services under this agreement. The suspension will remain in effect until the arrears are paid in full, including any accumulated interest and penalties. Reactivation of services will occur only after the full settlement of the overdue amounts.
Arrears clause with a payment recovery action notice
This clause applies when formal notice is given for payment recovery actions.
If any payment due under this agreement remains in arrears for [insert time frame, e.g., "60 days"], the [creditor] will send a formal notice to the [debtor], informing them of the intention to initiate payment recovery actions. The notice will outline the total arrears, including interest and penalties, and the [debtor] will have [insert time frame, e.g., "15 business days"] to make the payment before legal or collection actions are pursued.
Arrears clause with remedy upon non-payment
This clause specifies remedies if payment is not made.
If the [debtor] fails to pay any overdue amounts within [insert time frame, e.g., "30 days"], the [creditor] may, at their discretion, take remedial actions, including pursuing legal remedies, engaging a debt collection agency, or initiating arbitration. The [debtor] will be liable for any costs incurred by the [creditor] in recovering the arrears, including legal fees and collection charges.
Arrears clause with automatic payment adjustment for overdue amounts
This clause applies when overdue amounts are automatically adjusted.
If any payment is overdue by [insert time frame], the [debtor] agrees to an automatic increase in the installment amount for the next [insert time frame, e.g., "3 months"] to catch up on the arrears. The adjusted installment amount will be calculated to include both the overdue balance and any accrued interest.
Arrears clause with default action after non-payment
This clause applies when there is a default action after non-payment.
If any payment due under this agreement is not made by the due date, the [debtor] will be considered in default. The [creditor] may, at their discretion, take immediate action to recover the arrears, including but not limited to suspension of services, termination of the agreement, or legal action to recover the overdue amount.
Arrears clause with delayed payment penalty
This clause applies to a penalty for delayed payments.
If the [debtor] fails to make any payment due under this agreement within [insert time frame, e.g., "10 business days"] of the due date, the [debtor] will incur a penalty of [insert penalty amount, e.g., "$100"]. This penalty will be added to the overdue amount and must be paid immediately along with any accrued interest.
Arrears clause with notification before collection
This clause requires notification before taking collection actions.
If any payment due under this agreement is in arrears for more than [insert time frame, e.g., "30 days"], the [creditor] will send a final written notice to the [debtor] before referring the matter to a collection agency. The notice will outline the total arrears, including interest and penalties, and the [debtor] will have [insert time frame] to resolve the overdue amount before collection actions begin.
Arrears clause with interest and collection fees
This clause applies when interest and collection fees are added to overdue amounts.
If any payment is in arrears for more than [insert time frame, e.g., "30 days"], the [debtor] will be charged interest at the rate of [insert interest rate] per annum, plus an additional collection fee of [insert fee amount, e.g., "$100"]. The total overdue amount, including interest and fees, must be paid in full before any further actions are taken under this agreement.
Arrears clause with escalation process for unresolved arrears
This clause applies when unresolved arrears lead to escalation.
If the [debtor] fails to settle the overdue amount within [insert time frame, e.g., "30 days"], the [creditor] will initiate an escalation process. This includes escalating the matter to senior management or legal representatives, and the [debtor] may be liable for additional costs associated with the escalation process, including legal fees and other expenses.
Arrears clause with credit impact notification
This clause applies when arrears may impact the debtor's credit.
If any payment remains in arrears for more than [insert time frame, e.g., "45 days"], the [creditor] reserves the right to report the [debtor] to credit bureaus. The [debtor] will be notified in writing prior to any reporting, and the [debtor] may be responsible for any associated consequences, including a decrease in their credit rating.
Arrears clause with right to terminate for persistent non-payment
This clause applies when the creditor has the right to terminate the agreement due to non-payment.
If the [debtor] fails to make payments that are in arrears for more than [insert time frame, e.g., "60 days"], the [creditor] may terminate this agreement with immediate effect. Upon termination, the [debtor] will remain liable for any unpaid amounts, including interest, penalties, and collection costs, and the [creditor] may take legal action to recover the outstanding balance.
Arrears clause with dispute resolution for overdue payments
This clause applies to resolving disputes regarding overdue payments.
If the [debtor] disputes any portion of the overdue amount, the parties agree to resolve the dispute through mediation within [insert time frame, e.g., "10 business days"]. If the dispute is not resolved through mediation, the matter will proceed to binding arbitration under the rules of [insert arbitration body]. The [debtor] will be responsible for paying the undisputed portion of the arrears during the dispute resolution process.
Arrears clause with final settlement upon full payment
This clause applies to the settlement of arrears after full payment.
Upon full payment of all overdue amounts, including any accrued interest, penalties, and fees, the [debtor] will receive a final settlement letter from the [creditor] confirming that the arrears have been cleared. The [creditor] will restore any services or privileges suspended due to the arrears, provided no further breaches of the agreement occur.
Arrears clause with partial payments
This clause applies when partial payments are made to settle arrears.
In the event of arrears, the [debtor] may make partial payments towards the overdue amount. Each partial payment will be applied first to any interest and penalties accrued, and the remaining balance will go towards reducing the principal. If the [debtor] defaults on any agreed-upon partial payment, the full overdue amount, including interest and penalties, will immediately become due and payable.
Arrears clause with late payment notice
This clause applies when a late payment notice is required.
If any payment is overdue, the [creditor] will send a late payment notice to the [debtor] within [insert time frame, e.g., "5 business days"]. The notice will outline the overdue amount, including any applicable interest and fees. If the overdue amount is not paid within [insert time frame], further action, including legal remedies, may be pursued to recover the debt.
Arrears clause with suspension of future credit
This clause applies when future credit is suspended due to arrears.
If any payment remains in arrears for more than [insert time frame, e.g., "30 days"], the [debtor] will no longer be eligible for any future credit under this agreement until the arrears are cleared in full. Any subsequent purchases or transactions will require advance payment until the outstanding balance is fully paid.
Arrears clause with automatic default on additional credit
This clause applies when overdue payments lead to automatic default on additional credit.
If the [debtor] fails to pay any overdue amounts under this agreement, the [debtor] will automatically be considered in default for any additional credit or extensions granted under this agreement. The [debtor] will immediately be required to pay any outstanding balance in full, including all accrued interest and penalties, within [insert time frame].
Arrears clause with non-payment as a breach of contract
This clause specifies that non-payment is considered a breach of the agreement.
Failure to make any payment under this agreement by the due date will constitute a breach of contract. The [creditor] may exercise any of its rights under this agreement, including but not limited to terminating the agreement, suspending services, or initiating legal action to recover the overdue amounts, including any applicable interest, penalties, and fees.
Arrears clause with agreed-upon payment method for overdue amounts
This clause specifies the agreed payment method for overdue amounts.
In the event of arrears, the [debtor] agrees to settle the overdue amounts using the following payment method: [insert payment method, e.g., "bank transfer, credit card, check"]. If the [debtor] fails to make the payment through the agreed method, the [creditor] reserves the right to reject the payment and pursue other remedies for the overdue balance.
Arrears clause with restructured payment terms
This clause applies when payment terms are restructured to accommodate arrears.
If the [debtor] is unable to pay the overdue amount in full, the [creditor] may agree to restructure the payment terms. The [debtor] and [creditor] will negotiate a new payment schedule, which may include smaller, more manageable payments. If the [debtor] fails to adhere to the new payment terms, the entire outstanding balance, including interest and fees, will become immediately due.
Arrears clause with an interest rate increase after a set period
This clause applies when the interest rate increases after a set period of arrears.
If any payment is overdue for more than [insert time frame, e.g., "60 days"], the interest rate on the overdue balance will increase by [insert percentage increase, e.g., "5%"]. This new rate will apply to any remaining balance until the full overdue amount is settled. The increased interest rate will be in addition to any other fees or penalties outlined in this agreement.
Arrears clause with non-payment reporting
This clause applies when non-payment is reported to authorities or credit bureaus.
If any payment remains overdue for more than [insert time frame, e.g., "90 days"], the [creditor] reserves the right to report the [debtor] to credit bureaus or relevant authorities. This report may negatively impact the [debtor]'s credit score and future borrowing capacity. The [debtor] will be notified in writing before such a report is made.
Arrears clause with reminder and additional fees for non-payment
This clause applies when a reminder is sent before additional fees are imposed.
If the payment due under this agreement is not made within [insert time frame, e.g., "15 days"], the [creditor] will send a reminder notice to the [debtor] and impose an additional fee of [insert fee amount, e.g., "$50"]. This fee will be added to the overdue amount, and the [debtor] will have [insert time frame, e.g., "5 days"] to pay the overdue balance before further fees or actions are pursued.
Arrears clause with cross-default provision
This clause applies when non-payment in one agreement leads to default in others.
If the [debtor] fails to make any payment under this agreement by the due date, it will trigger a cross-default provision, meaning the [debtor] will be considered in default under any other agreements with the [creditor]. All overdue amounts in all agreements will become immediately due, and the [debtor] will be required to settle the full outstanding balances, including interest and penalties.
Arrears clause with notification of arrears to a third-party
This clause applies when the [debtor] is notified of arrears by a third party.
In the event of arrears, the [creditor] reserves the right to notify a third-party collection agency of the overdue payment. The [debtor] will be liable for any fees or charges incurred by the collection agency in attempting to recover the overdue amount. Such notification may be made after [insert time frame, e.g., "30 days"] of non-payment.
Arrears clause with automatic acceleration of payment
This clause applies when overdue payments cause automatic acceleration of the entire payment.
If any payment due under this agreement is in arrears for more than [insert time frame, e.g., "60 days"], the full balance of the [debtor]'s outstanding obligations under this agreement will automatically accelerate, meaning the entire remaining amount will become immediately due and payable in full. No further installments or payment plans will be available.
Arrears clause with set-off rights
This clause applies when the [debtor] has set-off rights in case of arrears.
If the [debtor] owes arrears, the [creditor] may set off any outstanding amounts owed by the [debtor] under this agreement against any other amounts payable to the [debtor] by the [creditor]. This right of set-off will apply until the arrears are paid in full.
Arrears clause with prepayment of future payments
This clause applies when arrears trigger prepayment of future amounts.
In the event of arrears, the [creditor] may require the [debtor] to prepay future installments or amounts due under this agreement to cover the arrears. These prepayments will be applied to reduce the overdue balance and prevent further delays in payment.
Arrears clause with early termination option
This clause applies when arrears allow for early termination of the agreement.
If any payment is in arrears for more than [insert time frame, e.g., "45 days"], the [creditor] reserves the right to terminate this agreement with immediate effect. Upon termination, the [debtor] will be required to pay all outstanding arrears, including accrued interest, penalties, and any additional fees associated with the termination.
Arrears clause with notice before initiating legal action
This clause requires a notice before legal action is initiated for arrears.
If any payment due under this agreement remains in arrears for more than [insert time frame, e.g., "60 days"], the [debtor] will receive a final written notice of overdue payment. The [debtor] will have [insert time frame, e.g., "10 business days"] to settle the arrears before legal action is initiated to recover the overdue amounts.
Arrears clause with review of payment terms
This clause applies when arrears trigger a review of payment terms.
In the event of arrears, the [creditor] reserves the right to review the [debtor]'s payment terms. The [creditor] may require adjustments to the payment schedule, including higher installment amounts, shorter payment periods, or other changes to ensure timely payment of the arrears.
Arrears clause with automatic application of payments
This clause applies when overdue payments are automatically applied to the oldest outstanding debt.
Any payments received from the [debtor] after the due date will be applied first to the oldest overdue amounts under this agreement. Payments will be applied to the arrears and any accrued interest or penalties before being applied to any current charges or future amounts due.
Arrears clause with third-party recovery action
This clause applies when arrears lead to third-party recovery actions.
If any payment remains in arrears for more than [insert time frame, e.g., "90 days"], the [creditor] may refer the matter to a third-party recovery agency for collection. The [debtor] will be liable for all costs, including third-party fees and expenses, incurred in the collection of the arrears.
Arrears clause with interest rate escalation
This clause applies when the interest rate escalates after arrears.
If the [debtor] fails to make payment by the due date, the interest rate on the overdue amount will escalate by [insert percentage, e.g., "2%"] for each subsequent [insert time frame, e.g., "month"] the payment remains unpaid. The interest rate will continue to escalate until the overdue balance is paid in full.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.