Receivable/Accounts - Information for Credit and Collection Issues

Monday, September 16, 2013

Collection Tip - The Good Faith Payment




Often, a person in financial straights will ask for some time to organize their finances, start employment, ask to borrow funds, or some other reason to make a payment three, four, or even eight weeks down the road.  Obviously this works against the collection agency’s natural tendency to want payment, immediately, in full.

Often a good negotiation tactic is to have the debtor make a show of good faith, by making a token payment.  In exchange for the good faith payment, the collection agent can give the debtor 15 or 30 days to put their finances in order and come back with a solid payment arrangement.  If your client will allow this option when making payment arrangements, there are several good reasons to use this strategy when dealing with consumers with limited income, or asking for you to grant them time.

þ It shows leniency on the collection agent’s part, without depending on simple lip service – the time granted is based on a physical payment, not a promise.
 
þ It psychologically commits the debtor to a payment arrangement.  Once a debtor has made a payment on the file, it steps past *if* the debt will be paid, and enters the realm of *when* the debt will be paid.

þ It doesn't back the consumer into a corner -- because you are looking for a commitment rather than a scheduled arrangement, it allows them to show their sincerity and ability to pay.  They may offer $20, or $200 -- it sets the tone for how negotiations will go forward based on their ability to approach the issue.
 
þ It allows the collection agent to show the client that effort is being made on the file, and allows the agent to withhold credit reporting, legal action, or even possibly interest applying to the account.
 
þ If the payment has been secured by an Electronic Fund Transfer (EFT) or pre-authorized payment (PAP), then the mechanism for setting up future payments is in place, subject to authorization by the debtor – there is no need to wait for ‘the cheque in the mail’.

To use the option of a good faith payment, try saying the following:

"Adrienne, I understand you are asking for time to put together a payment arrangement, and I’d like to work with you.  However, my client is understandably asking for payment in full, because no payment has been made on this account in six months. 
What I can do to help you is have you make a good faith payment – between you and I, the amount does not matter, the fact you are making a payment does.  What this will do is show our client that you intend to pay the account, and our office receiving the payment shows your commitment to resolving this file with myself.  If you make this good faith payment immediately, I can get permission from the creditor to set your file aside for 30 days, to give you the time you need to put a solid payment arrangement in place."

Conclusion

This negotiation tool represents one option in our APPRAISE process.  If you have questions about collection methodology, or you are a creditor interested in learning new ways to approach accounts receivable contacts with customers, feel free to call or email myself to discuss our process.  I can be reached at Kingston Data and Credit, at 226-946-1730.

Thanks kindly,

Blair DeMarco-Wettlaufer
Kingston Data and Credit
Cambridge, Ontario
226-946-1730