The payment schedule: an approach to facilitate collection
24% is the rate of unpaid invoices between companies in France according to the latest Side Trade study for BFM Business. This worrying increase in inter-company receivables leads the finance functions to redouble their creativity to reduce their DSO and recover their unpaid debts quickly.
There are several reasons for unpaid bills. A commercial dispute, a misunderstanding on the invoice, a forgetfulness to pay sometimes. In times of crisisThe lack of cash flow is increasingly being blamed.
In this case, the payment schedule can be very useful to unblock a situation amicably while preserving the commercial relationship with your customer.
When and to whom should a payment schedule be proposed? What are the conditions for the implementation of a fast debt collection? We take stock.
The payment schedule: an arrangement that can pay off
When a customer no longer pays your invoices because of cash flow problems, a payment schedule is a cost-effective solution.
Benefits of the payment schedule:
- It often avoids recourse to a legal procedure which can sometimes be long, costly and particularly difficult to set up.
- It preserves the commercial relationship you have built with your customer, and even strengthens your ties of trust. All businesses can experience cash flow problems, especially in these times. If you listen carefully and understand your bona fide debtor-client, he or she will be more likely to remain loyal to you over the long term.
- The payment schedule even speeds up collections. If the terms of the schedule seem fair, just and realistic to your client-debtor, you will have a better chance of getting your money back than if you opt for forced collection in the first place. The legal procedure could actually make your debtor customer angry and he might be tempted to make it more difficult for you, or even to organize his insolvency to stop the debt collection against him.
- It constitutes an acknowledgement of debt in case of failure of the amicable negotiation. The certainty of the claim is no longer in doubt and will be useful in case of legal action.
But be careful, all the benefits of this amicable collection method listed above are to be put in mirror with the debtor profile, his environment and the commercial relationship you have built together.
How to successfully set up a payment schedule?
Once you have assessed the viability of this solution to amicably collect your outstanding debts, you must be able to evaluate your client-debtor’s ability to repay and his exact situation.
A good payment schedule takes into account both the debtor’s difficulties and the creditor’s interests
A realistic plan must take into account the financial capabilities of your debtor, its economic situation, the nature and strength of your business relationships and your own interests.
There is no point in proposing a payment plan with instalments that are too close together or too high and that your debtor will not be able to meet. The arrangement would be doomed to failure.
However, the payment schedule should be for the shortest period of time possible to protect yourself from excessive cash flow shortfalls. You can also include interest on late payments to compensate for the time granted.
It’s all about balance.
Evaluate as accurately as possible the financial capacities and economic situation of your debtor client
You can ask your debtor customer directly. In addition, you can order commercial information (solvency research, assessment of payment capacities, etc.) or use the financial databases which constitute a significant element of reinsurance and which can direct you to the maximum recommended customer credit line. .
This way, you can negotiate the payment terms (duration, frequency and method of payment, amount of installments, late payment penalties) more serenely.
Our advice to ensure the success of this amicable solution
- Demand an immediate first payment as soon as the payment schedule is set up, always based on the financial capabilities of your debtor customer, to verify his good faith.
- Arm yourself with a transactional protocol signed by both parties setting out the terms of the payment schedule: it will have value of acknowledgment of debt in the event of legal proceedings if the amicable collection of debts were to fail.
- Add a clause providing for the termination of the settlement agreement if a single payment is not made by the agreed date: respecting the dates is just as important as respecting the amounts, especially if the agreement includes a partial waiver of the claim. If, for example, the amount of the debt is 12,000€ but the agreement is made for 10,000€ with a 2,000€ waiver, in case of non-compliance by your debtor, the agreement is rendered null and void and the legal proceedings may well concern the entire original amount of the debt, i.e. 12,000€.
- Track payments closely and systematically and keep your debtor customer as involved as you need to be. At the slightest incident, you will have to be reactive and consider legal recovery.
The payment schedule did not result in the collection of your outstanding debt?
If, despite your efforts and attempts at amicable conciliation, you have not succeeded in obtaining payment from your client, you still have a few resources to use.
The use of a debt collection company may be appropriate in this case. Collection is a profession in its own right and the professionals in charge of managing unpaid debts are experts with a wide range of skills who are committed to preserving the commercial relationship between the creditor and the debtor. Listening, sharing, empathy, interpersonal communication, these are all tools that allow him to collect the unpaid debts entrusted to him with ethics and respect for your debtor clients.
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