Glossary
Payment Plan and Acceleration Clause
An acceleration clause is a contract term allowing a creditor to declare the entire remaining balance of an installment debt or payment plan immediately due if the debtor defaults.
When a business customer cannot pay a past-due balance all at once, creditors often agree to a payment plan. That plan might be a simple letter agreement, a signed promissory note, or a court-approved stipulation. An acceleration clause is the provision that protects the creditor if the plan fails. Without it, a creditor might be able to sue only for each installment as it comes due. With it, a missed payment can make the full remaining balance due at once.
Acceleration clauses can be automatic, where the full balance becomes due immediately on default, or optional, where the creditor may declare acceleration after a default, often after giving notice and a short chance to cure. Many state laws and court decisions require that optional acceleration be exercised clearly, and the clause's wording controls how it works. Payment plan agreements commonly also confirm the total amount owed, state that the debtor has no defenses or offsets, add or waive interest, include a personal guarantee, and allow recovery of collection costs and attorney fees where enforceable. Some creditors use a stipulated or confessed judgment that can be entered if the debtor defaults, but confessions of judgment are restricted or barred in some states.
Here is a fictional example. A printing company, Redline Press, is owed $30,000 by a marketing agency. The parties sign a payment plan calling for $5,000 per month for six months, with an acceleration clause triggered by any payment more than 10 days late after written notice. The agency makes three payments, then misses the fourth. Redline sends the notice, the cure period passes, and it declares the remaining $15,000 due and refers the account for suit.
Acceleration clauses matter to creditors because they make payment plans safer. They let a creditor offer flexibility to a struggling customer while keeping the ability to move quickly if the arrangement breaks down.
Example
Redline Press's six-month plan includes acceleration after a missed payment and notice. When the debtor defaults after three payments, Redline declares the remaining $15,000 due.