If you’ve not read that one yet, you can find it here. Go ahead and read that one first, we’ll wait. All caught up? Great! So this post is all about how to take an overdue customer into a payment plan. Now, a lot of business owners wince at this idea, since it does somewhat mess with their cash flow, not to mention indicate that they may not get paid at all. But it’s not the end of the world – in fact, it’s a very good thing.
Embrace Willing Payers
Now, when most business owners get a call from someone saying: ‘I’m really sorry, but I can’t pay you the full amount right now’, they get angry. But they shouldn’t! Don’t let yourself be thrown off balance by the fact that they can’t pay your bill at once, like you want them to. Instead, focus on the fact that you have a willing payer on the phone. This is much better than someone who can’t pay you and has no intention to pay (or let you know that they can’t). Instead, you have someone who wants to pay you, but just can’t do it all at once. It might be that they can’t quite get to the full amount, or that they can’t even get close – but you shouldn’t just send them to the black list right away. After all, cash flow issues happen to the best of us. So when this happens, it’s time to start negotiating them into a payment plan, so that you can still retrieve the money you’re owed.
Letting Them Move First
Rule 1 of negotiations is simple – always let them move first. So, start off the conversation by asking them what they can afford. They may come back and say that they can afford to pay £100 a month to cover a £1000 debt. Now, according to your organisation’s standard criteria, this might not be acceptable, but now you have a foundation to work from. If you start out by offering a solution, then you essentially enter into a bidding war with yourself, and could talk yourself into an unsatisfactory agreement. By working out what the customer can afford and thinks is reasonable, you’re in a much stronger negotiating position. It’s now up to you to turn that offer into an acceptable agreement for your business.
Making Counter Offers
Once the customer has made their offer, your reply should inform them that you can’t accept this offer (unless, of course, you can – you shouldn’t negotiate for the sake of it!), and perhaps there is another way you can work it out. A common option for lower monthly payments is a higher down payment – so for the above debt, you might suggest they pay £500 in month one, and then five months of their preferred £100 payment. This allows you to accommodate their monthly budget while getting a chunk of the bill paid at the door. They may jump at this offer, or it may not be possible, but you are now moving in the direction you need the negotiation to go, and not the other way around. The key thing to remember is that higher payments over a shorter term are always preferable, as this increases the initial monthly payments and decreases the amount of time it takes to satisfy the debt in full. You may need to go back and forth a few times, but always in your favour.
4 Things To Remember About Payment Plans
- You have a willing payer on the other end – don’t lose sight of that in a bid to get more money now.
- Let them offer the terms first – don’t end up bidding against yourself!
- If what they offer isn’t reasonable, you can counter that offer. A good rule is to aim for higher payments over a shorter period.
- End all conversations on a positive note, and remember to do a follow up to remind them of their next payment.
That’s all for part 2 of this 3-part series. We know that many businesses out there still believe that payment agreements should be avoided, as it’s ‘like admitting you won’t be paid’. But they couldn’t be more wrong. Working out a payment agreement with your customers means you will actually get the money you are owed, just not all at once. Which, in our books, is significantly better than not getting it at all! At Debtcol, we believe in recovering the money owed to you without alienating your customers for the future. No rough collections stuff here. Instead, we often mediate negotiations around payment plans, and have experience creating and implementing them for businesses of all sizes. To find out more about how to create and agree to a payment arrangement with your customers, or to enquire about outsourcing it to a specialist debt collector, just get in touch with us today.