Agreeing Commercial Credit Payment Plans
Agreeing payment plans with delinquent customers is a common part of credit control. We’ve included some guidelines to help you get the best outcome for your company and to make consequences of defaulting on the agreement clear to your customer.
- Push back on their first offer of payment, it’s unlikely their first offer is their best offer.
- Look at what leverage you are using to encourage they pay your debt in the shortest amount of time. The leverage could be a delay in court action, freezing or removing interest and or compensation or costs on the debt, you you may want to offer a reduction in the full amount due.
- Ensure you make it clear how your customer can accept the offer, and how that they should confirm their agreement in writing, so if they default and you have to look at court action, you can make it clear to the court they agreed to the payment plan and therfore do not have a dispute.
- Comunicate to them, if the offer is not accepted within a specified timeframe, the offer will be ‘automatically be withdrawn’.
- When it comes to interest, you are entitled to charge interest from day 1 the debt becomes due and will no doubt be paying interest to your bank to be able to carry the debt, therefore, it’s reasonable for them to pay interest to the date the payment in full is received- see our list of toolkits on what interest and costs you can charge and how to calculate them.
- Does your customer understand that payment of the instalments are of the essence of the agreement? If you don’t receive payment by the agreed dates, the agreement to pay by instalments will be withdrawn and the full value of the outstanding debt plus costs and interest will become immediately due. If you have agreed a reduction in the debt as part of the agreement, state that the full amount of the debt with the reduction removed will be also be due.
- If you are unsure your customer may go into insolvency before they have paid your debt in full, ask for a directors personal guarantee from them. It is not something any director will be keen to give you, but if they are not confident their business will survive whilst the debt is paid off, why should they expect you to carry the risk? Consider taking immediate legal or insolvency action instead of agreeing to the payment plan.
If you follow the above guidelines, you should be confident of getting paid, or if not be able to show your customer does not have a defence if litigation is to folllow or, as the agreement demonstrates there is no dispute on the debt, you might want to consider insolvency proceedings instead of the court route.
If you have any questions on the above, consider our low cost support service with a small monthly fee that enables you to have access to our vast experience and knowledge.
