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Payment Plan Negotiations

Updated: June 2020

Payment Plan Negotiations

The Secret is Taking Control

When it comes to setting arrangements for a payment plan with the customer, there are many ways for collectors to start negotiations on the right foot.

For the sake of this discussion, assume that a given customer has a legitimate reason to try to set up an arrangement for installment payments, such as insufficient income or assets that allow the customer 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.

The simple rule when it comes to any form of negotiation is to never bid against yourself. If a customer explains they can’t come up with a full and immediate payment, the response should always be, “How short of the full amount are you?” Limiting your own talking by concentrating on the debtor’s words, and even using strategic pauses to draw more explanation from the debtor, are two further telephone negotiating practices.

The point is to extract from the customer the amount he or she claims they are capable of paying, and how frequently. If you give them a figure, you could quite possibly be bidding against yourself. Once that occurs, 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 customer 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 customer 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 customers end. Not only does this help discern whether settling a debt for less is suitable, but also helps determine a proper time frame for their recurring payments.

You can make it clear that you’re not a banker offering loan terms. If a customer wants to make payments, they must come to some sweeter means to meet you half way. By drawing them 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. That’s good negotiating.

Once you reach an agreement with the customer, always confirm payment arrangements in writing. This could be a promissory note, personal guarantee from the customer or even a signature from a third party guarantor in the event that the customer defaults on his/her payments. For promissory notes, it’s critical to highlight any clauses in yellow and be aware of legal considerations around the world.

And, remember. Never, ever bid against yourself.

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