Lesson 1, Topic 1
In Progress

5.5. Negotiating to Get a Promise to Pay

ryanrori January 21, 2021

[responsivevoice_button rate=”0.9″ voice=”UK English Female” buttontext=”Listen to Post”]

A collector’s main goal should always be to secure a promise to pay (PTP) from the debtor. However, finding out the reason why the debtor has defaulted may be just as important. The debtor should always be made aware of the consequences of his/her late payment. The collector’s attempts to secure a PTP should be arranged in the following order:

First Attempt

The collector’s first attempt should be to secure a PTP within the next seven days. Should you find that the debtor is only able to pay within the next ten to twenty days, it might be advisable to request a post dated cheque if possible. Should the debtor not be a cheque account holder, then simply arrange with the debtor for an additional debit order to be requested on the specified date. The collector should advise the debtor of the fees involved, should the debit order reject. This may act as a deterrent from defaulting.

Second Attempt

The second attempt should be to get the debtor to pay 50% of the overdue amount immediately and the rest over the remaining period of days until the next instalment is due.

Third Attempt

If both the first and the second attempt have failed, the collector may have to settle for payment to be made within thirty days. This should be seen as a last option to negotiate.

Constant monitoring is required on an account which has fallen into arrears. It is clear that the debtor cannot be relied upon to make timely payments. Regular reminders are therefore necessary to encourage and enforce regular payments. Should a debtor not stick to the arrangement made, it may become necessary to consider more drastic measures to secure regular payments. The National Credit Act makes provision for legal action to commence in as little as twenty days of the amount being in arrears.

It cannot be stressed enough, that the sooner a collector acts on recovering an overdue amount, the better the chance of total recovery. The collector needs to remind the debtor of the amount and date of the next payment due. Debtors often find it difficult to pay a double instalment, it should therefore be expected that the debtor will only be able to afford a lesser amount. Once the amount has been confirmed, it should be recorded on a collections management system along with the reason for the default.

Some Guidelines for Negotiating with a Debtor

These are some steps that should be taken in negotiations with delinquent debtors:

  • Ask what caused the delay in payment.
  • Ask how serious the problem is and what the customer is doing to resolve the problem.
  • Always ask for immediate payment in full.
  • Know what is the least you will accept from the debtor/customer or business entity that owes money before making the collection call.
  • Ask the debtor to acknowledge the debt in writing.
  • Request a substantial, immediate payment as an indication of the customer’s good faith.
  • Propose an aggressive repayment plan, and then ask for the debtor’s comments about your proposal.
  • If the customer agrees to your proposal, arrange for them to confirm it to you in writing – even if it is only an email.
  • If the customer rejects your payment plan, insist that they make a counter offer.
  • Do not accept any counter offer immediately. Think it over carefully.
  • If the customer’s proposal is below your minimum acceptable level, reject it immediately. Doing so sends a message that you are serious about the negotiation. and are not about to be “taken for a ride” by the debtor.
  • Remember that a delinquent customer’s first offer is a “sucker” deal intended for inexperienced or unprepared trade creditors.
  • Consider asking the debtor to return inventory to clear part of the debt if the inventory has kept its value, and assuming you believe there is little or no chance that the debtor will file bankruptcy within 90 days of returning the product.
  • Ask your customer to provide security or collateral in exchange for extended time to pay the debt.
  • Approach negotiations as equals. If you do not act and speak as an equal, you will be at a serious disadvantage.
  • Ask the customer for additional information that would help you to understand the scope and extent of their financial problems.