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Payment Plan Negotiations

Updated: June 2019


The Secret is Taking Control

When it comes to setting arrangements for a payment plan with the debtor, time and again I hear new or novice collectors begin negotiations on the wrong foot.

For the sake of this discussion, assume that a given debtor has a legitimate reason to try to set up an arrangement for installment payments, such as insufficient income or assets that allow the debtor to file for chapter 7 bankruptcy. These situations make it nearly impossible to collect on all the debt owed. Since there is a higher risk of collecting nothing from a debtor in a situation like this, working out a payment plan can be advantageous.

So, what am I hearing that’s so offensive to my bill collector’s ears?

"Mr. Jones, I can appreciate the fact that you can’t pay the full amount now. But can you pay half now and half later?"

Oh my aching back! When I hear something like that it goes through my spine like a steel spike.

I have a very simple rule when it comes to any form of negotiation:

NEVER – I MEAN NEVER – BID AGAINST YOURSELF!


If a debtor tells me he can’t come up with a full and immediate payment, my response is always, “How short of the full amount are you?”

The point is to extract from the debtor the amount he claims he is capable of paying. If you give him a figure, you could quite possibly be violating my basic negotiating rule - Never bid against yourself. Once you do that, you've lost control of the situation. Also, be aware that, no matter what figure or term he may offer, you can take for granted that it's understated.

Once the debtor lays his cards on the table, always counter with something like, “I may consider that offer, if you can make it more palatable by including a series of postdated checks (or a promissory note or personal guarantee etc).

While the debtor on the other end of the phone may protest your suggestion, you are now in control. 

Perhaps the most important aspect of negotiating payment plans is having a concrete understanding of what caused delinquent payments on the debtors end. Not only does this help discern whether settling a debt for less  is suitable, but also helps discern a proper time frame for their recurring payments.

You can make it clear that you’re not a banker offering loan terms. If he wants to make payments, he must come to some sweeter means to meet you half way. By drawing him out, you've put yourself in a position to either obtain a shorter term or possibly improve the legal status of the debt with a more favorable instrument. And that's good negotiating.

Once you reach an agreement with the debtor, always confirm payment arrangements in writing. This could be a promissory note, personal guarantee from the debtor or even a signature from a third party guarantor in the event that the debtor defaults on his/her payments.

And, remember. Never – never ever – bid against yourself.