Negotiating With Delinquent Debtors

Negotiations with delinquent customers can be stressful and difficult. The customer may feel they are on the defensive. The collector may be under pressure to produce certain collection results. The credit manager may be under pressure because he or she made a bad decision when the order was released. No one relishes the collection process. It is a necessary job. and it is far more than that. It is necessary that the credit department staff be proficient as collectors. Why? Because customers allocate payments between and among creditors. The better the collector or credit manager is at payment negotiations, the more money the creditor company will be paid and the sooner the payment(s) will be made. 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 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 only an e-mail.
• 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 process, and are not about to be "low-balled" 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.

Unfortunately, some collectors seem to prefer to call and take notes about payment commitments offered by the customer rather than to negotiate for a better payment plan. It is the credit manager's responsibility to make certain that every collector is negotiating for the best payment commitment the creditor can get.

Source: Michael Dennis, author of "Credit and Collection Handbook" available at the NACM Bookstore.