Default Clause Template
A default clause defines what counts as default and what you can do about it — the trigger that lets you act when a customer stops paying.
What's included
- Understand what a default clause does within your terms
- See how default events are commonly defined
- Identify the rights that flow from default
- Appreciate how default ties other clauses together
- Know when the clause should be reviewed
7 min read
The clause
This is general sample wording for a default clause within terms of trade. Replace each [placeholder].
DEFAULT
1. Events of default
You are in default if:
(a) you do not pay any amount by its due date;
(b) you breach a material term and do not fix it within
[number] days of our notice;
(c) you become insolvent, or steps are taken toward
insolvency or external administration; or
(d) you cease, or threaten to cease, to carry on business.
2. Our rights on default
If you are in default we may, without limiting our other rights:
(a) require immediate payment of all amounts owing
(whether or not yet due);
(b) suspend or stop further supply;
(c) charge interest and recover our reasonable recovery costs;
(d) exercise our rights under the retention of title clause; and
(e) take recovery or legal action.
3. No waiver
Not exercising a right on one occasion does not waive it.The clause that activates the others
On its own a default clause does little; its job is to switch on the protections elsewhere in your terms. When a customer defaults, this is the clause that lets you accelerate the balance, stop supply, run interest and costs, and call on retention of title. Defining default clearly — non-payment, insolvency, and so on — and listing the rights that follow gives you a clean basis to act rather than improvising once an account goes bad.
How to use it
Cross-check the rights here against your interest, recovery-costs, stop-supply and retention of title clauses so they line up. When a default actually happens, document it, give any notice your terms require, then exercise your rights deliberately. If the account is not recoverable in-house, you can refer the debt with the default and your terms as the foundation. To set the payment terms that determine when default occurs, use the free Payment Terms Generator.
Not legal advice
This is a general template and general information only — not legal advice. The events of default and the rights that follow should be drafted to fit your business and to work with your other clauses. Have your default clause reviewed by a lawyer before you rely on it.
Tips
- A default clause defines default and what you can do about it.
- It activates your interest, costs, stop-supply and title rights.
- Acceleration lets you call in the whole balance.
- Make sure it aligns with your other clauses.
FAQ
What counts as an event of default?
Commonly non-payment, uncured material breach, insolvency, and ceasing business. The exact list should fit your terms. This is general information, not legal advice.
What is acceleration?
The right to require immediate payment of all amounts owing on default, even those not yet due. It is a core benefit of the clause.
Does not enforcing once waive the clause?
A no-waiver provision is included to prevent that, but how waiver operates depends on the facts. Take advice if it matters.
Templates are a head start — not legal advice
Customise to your business and have important documents reviewed. Need to recover a debt? We can help.