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In this video tutorial, the host explains how to write a payment agreement, which is a legally binding document between a lender and borrower detailing loan terms, including payment amounts, schedules, and penalties. The tutorial emphasizes starting with a clear opening statement where the signer acknowledges financial responsibility for all services rendered. It is essential to specify the agreed payment amount and timeline. Additionally, the video discusses the importance of including a penalty clause for late payments, noting that each agreement may have different penalties which can be customized in terms of percentages and amounts.