When it comes to business, money is often the most important factor that needs to be managed wisely. And for those times when funds are tight, an installment agreement might be just the solution. But what is an installment agreement and how does it work? Read on to find out the answers and get an understanding of this common legal concept.
What Is an Installment Agreement?
An installment agreement, also known as a payment plan, is a legal agreement between two parties – typically a creditor and a debtor. With an installment agreement, the debtor agrees to pay back the debt in regular payments by a set date. In turn, the creditor agrees to accept payments until the debt is repaid in full.
How Does An Installment Agreement Work?
A key element of an installment agreement is determining a payment schedule. It is important for both the creditor and the debtor to agree on the amount of each payment and the number of payments that will be made. Other details such as the dates when payments are due should also be included. Once the agreement is made, it is legally binding and both parties are obligated to adhere to the terms until the debt is fully repaid.
Example of an Installment Agreement
Let’s look at an example. Say a startup business needs to purchase new computer equipment but does not have the cash to do so. The business owner could reach out to the computer retailer and set up an installment agreement. In this scenario, the retailer might agree to allow the business to pay for the computer equipment in three equal payments over the course of three months. The payment schedule and amount due with each payment would be laid out in writing, making it a legally binding agreement. The business owner would then be responsible for making the payments on time.
Bottom Line
For businesses with limited funds, an installment agreement can be a viable solution for making purchases they otherwise might not be able to afford. It is important to understand the details and design a payment schedule that works for both parties, while also fully understanding the legal implications of such an agreement.