If you’re trying to handle your collections and credit control yourself, you might often be left wondering if implementing a payment plan for debtors is a good idea? When you’re facing multiple late payments, or sometimes no payments at all, it is tempting to try and be flexible with your debtors in a bid to try and guarantee the recovery of at least some funds even if it’s not the full amount. We’re going to explore both sides of the coin and help you discover if payments are right for your business and creditors.
What is a Payment Plan for Debtors?
If you have clients who are unable to clear their outstanding invoices from you, you could offer them a payment plan. A payment plan is a formal agreement between both parties that sets out how a debt will be settled, for example, an invoice could be cleared in small increments over a set period of time. A payment plan is often helpful if a business is unable to pay an invoice within your standard payment terms, which could happen as a result of your client’s poor cash flow. If you are willing to be flexible then payment plans can become a useful tool in recouping the full amount of any outstanding monies, instead of settling for a smaller proportion of the debt if your customer cannot pay the full amount. But, it is a decision that should not be taken lightly.
What Should I Consider When Setting Up a Payment Plan?
It is important to consider the impact that a payment plan will have on your business’s cash flow. You will be receiving smaller but regular payments from your customer instead of one lump sum and so this may affect how you are able to pay your own suppliers. You need to ensure that the amount you are receiving each month is enough to cover what you need it to and so using your cash flow forecast can help you determine the minimum amount that you will be able to accept from your customer each month. You can then use this information when negotiating with your customer to determine how much they will be able to pay each month.
The most important part of setting up a payment plan with a customer is to ensure that whatever you agree is put in writing after the negotiating. Getting the agreement in writing will help to cover you if continue to have problems with this client after the payment plan has been put in place. You need to agree on the amount that will be paid each month, when the payment will be made and also the length of the repayment period. You should try and encourage your client to make payments by standing order so that the process is automated. However, if that is not possible then we would advise that you can send a reminder each month before the payment is due to encourage the payment to be made.
Is There a Better Option?
Whilst we can recommend payment plans as a strong tool in aiding the recovery of monies that are owed to your business, they must be continually monitored and managed. Some clients may agree to enter into a payment plan and still not make the smaller payments that they have agreed to, which leaves you with a debt that requires time and effort to chase. At My Debt Recovery, we are able to take on your recovery process, and manage your debtors to recoup your debts or late payments, using the most appropriate method (including payment plans) for each individual situation based on years of knowledge and experience in the industry. Reach out to a member of our team today to find out how we can help you.