Extended Dating Requests from Delinquent Customers

Delinquent customers periodically request extended dating on a past due balance in order to avoid a default or even a bankruptcy filing. It is important for the credit manager to know when to support such a request in a recommendation to his or her manager and when not to support the customer's request for additional time to pay the balance due. The most important consideration is whether or not the extension agreement is simply postponing the inevitable. If a debtor proposes an extension agreement, the creditor must have a reasonable assurance that it will be paid at the future date agreed upon. If the creditor does not believe this is possible, there is no reason to agree to [or to propose] an extension agreement.

A credit professional should consider supporting an extension agreement only if he or she believes it is in their company's best interest to do so. The proposal must:

• be reasonable in length,
• be certain as to the due date,
• should be documented in writing,
• should demonstrate that the debtor has every intention of making the payment, and
• demonstrate to the creditor that there is a strong probability that it will be able to meet the debt payment schedule proposed.

The debtor should be willing to commit to the terms of the extension agreement in writing. One popular mechanism for documenting such an agreement is a Promissory Note. If the customer will not put its commitment in writing, there is no reason for the credit manager to support the request.

A note of caution: Creditors are not required to agree to accept an extension agreement. Some creditors will do so, and other will not. As part of the process of deciding whether or not to support a request for extended time, you should know which of the debtor's other creditors have agreed to the extension. If your company is the only creditor offering extended terms, in effect your company is helping your debtor to pay its other trade creditors. For this reason, it is a good idea to make sure that you are one of many, and not the one and only creditor being contacted about a payment extension.

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