Collect On Your Debt Without the Cost of Court

The-Probe-Group-1aAs a creditor, there are always legal options available to collect on your debt. However, depending on the circumstances, these methods can be timely and costly. An alternative is to try and negotiate with the debtor to settle the matter.

Negotiation has many benefits. It saves on time and costs, it is a less aggressive approach and therefore can save on the emotional stress of a legal process, and negotiation typically encourages a quicker resolution.

This article will broadly explore some strategies for negotiating including:

  • Strategies for negotiating and successfully negotiating a payment plan.
  • Common mistakes in debt negotiations.
  • Tips for negotiating with debtors.

Strategies for negotiating with creditors

As a creditor, the reality is that a debtor will only pay off a debt if he or she has the means to do so. When negotiating it is important to get to the heart of why the debtor has not made payment – is it a resourcing issue or is there a dispute as to the value of the goods or services provided? If there is a resourcing issue, you can seek to engage the debtor by asking the right questions around repayment options. Ask about the time in which the debt could be repaid, or the amount of instalments that could be set aside toward repayment.

As a debtor, your negotiation of the repayment of your debt may be more successful if you also understand the creditor’s needs. Often a business relies on the constant receipt of funds in order to pay off its own debts or to conduct its business properly, as well as to meet other client’s needs or expectations.

Understanding the other party’s limits and expectations may mean that you, as a debtor or creditor, can have a successful negotiation. Appreciating each other’s points of view may allow you to arrive at an outcome that meets both party’s interests.

Common mistakes in debt negotiations

The most common mistake that people make in a debt negotiation is to fail to record everything in writing. You should always record any agreement formally in writing so as to protect yourself as a creditor in the event of a breach. Negotiations tend to take place over a period of time and not necessarily at a single meeting, so it’s a common mistake in debt negotiations not to have a print out of everything communicated in writing.

Another common mistake in debt negotiations is that presumptions are made but not expressly stated in the debt agreement which details the repayment plan. For example, an instalment plan may be entered into because a debtor is unemployed. The debt agreement should expressly state that the reason for the agreement is because the debtor is unemployed, and should also say that if the debtor enters employment, the agreement plan should be re-visited.

When it comes to dealing with debtors, you should never assume anything. Always spell out in the debt agreement:

  • The-Probe-Group-1bWhy you entered into the agreement.
  • What the repayment plan is: details of repayments etc.
  • If there is a change in circumstances of the debtor, how that will affect the plan.
  • Always expressly state what happens if the agreement is breached and the debtor fails to pay.

Tips for negotiating with debtors

It is important to remain professional and polite throughout your dealings with a debtor, as word of mouth is a powerful tool in business. How you conduct yourself in collecting on a debt may have a great impact on your business being talked about positively or negatively.

Do not simply rely on invoicing as a means of enforcing your debt. It is important to show a debtor that you are taking the collection of the debt seriously. It is sensible after two or three unpaid invoices to telephone the debtor and communicate with them directly. A telephone call is often overlooked in this digital age, and yet it is an incredibly powerful tool to encourage a positive resolution (if the phone call is kept calm and professional). If a telephone call is not returned, then formal letters can be sent notifying the debtor of the outstanding money, allowing a reasonable time frame for a response and impressing upon the debtor that the debt will be enforced.

Appreciating the financial hardship of a debtor can encourage successful negotiation. As discussed above, if a debtor can feel they can discuss their limitation to repayment then an agreement may more likely be reached.

Ultimately the key to a successful negotiation is to be flexible and open minded, but also to be realistic about what you want and what is achievable. Before negotiating with a debtor, as a creditor you should write down in three columns: what are the matters you are not able to negotiate on, what you could meet in the middle about, and what you could be open to disposing with.

And remember, you should always remain level headed in negotiations. If you do not feel that you are able to do so, then you should enlist an impartial specialist to help resolve the debt.

Jarrod Kagan
Having practised at a major law firm before moving across to Probe Group (one of Australia’s most prominent credit management organisations), Jarrod has over 8 years’ experience in credit management and debt recovery. He now holds the position of Head of Business and Compliance and as a qualified Lawyer, his skill level and experience covers the technical aspects of credit management and debt recovery, including: best practice, compliance, legislation, strategic analysis and industry specific detail.