How to create a payment plan

How to negotiate and create a payment plan with your debtor.

Many business owners, contractor, freelancer or sole trader do not think of a Payment Plan as being a very handy tool to get outstanding debts recovered. Often Payment Plans are seen as something ”corporates” do and as something that does not work for small businesses.

However, in a world where you hear radio ads that offer “a personal loan from $100 to $5000” provided by startup companies rather than banks, why not use the Payment Plan in a similar fashion?

After all, every outstanding debt is a loan to the debtor!

There are some really simple rules to follow if you want to the set up a Payment Plan.

  • Ask some basic questions and try to figure how the cash flow of debtor really looks.

Typical questions could be:

  • The reason for not paying
  • Why the reason for not paying occurred
  • When the debtor could pay or if someone else could pay
  • Ask how much the debtor could pay per week. Do this without offering an amount but with an amount in mind.

  • After you got an understanding of the situation of your debtor, offer a Payment Plan.

Keep in mind:

  • Document everything! Take notes while you speak.
  • Offer more small payments (e.g. weekly, fortnightly) rather than bigger payments (monthly/quarterly)
  • Set the first date for payments during your negotiation, then later communicate the following dates of payment
  • Communicate what happens when the payments from the payment plan bounce.
  • Maybe offer “discounts” for quicker payments.
  • Always send an email afterwards (or even a letter) that includes all the details of the payment plan and let you debtor confirm them.

A Payment Plan is a great way to start the flow of money back to the creditor and won’t force the debtor into financial trouble.