Pay day: dealing with a debtor with a “good” excuse

With the Royal Commission making funding for small business even tougher to acquire, and the resulting pressure on cashflow, overcoming those common excuses from debtors is more important than ever.

For SMEs that offer credit to customers, one of the most challenging parts of chasing up unpaid bills is dealing with the numerous excuses for why a bill hasn’t been paid.

It can be a balancing act trying to recover money owed without alienating clients and potentially losing future business.

There are always going to be rational reasons why some customers haven’t repaid their debts on time but making an excuse doesn’t mean a debtor is exempt from paying completely. You are well within your rights to continue following up payments from debtors, however, it’s also important to remember the importance of ongoing relationships with clients and ensure you are mindful of the challenges that can arise for debtors.

When faced with debtors who are providing legitimate excuses for why they haven’t and can’t repay their debt, how do you continue to follow up debts without burning any bridges? Here’s how to handle the most common types of excuses based on Prushka’s 42-year history working on behalf of more than 57,000 SMEs.

Health issues

Some of the hardest excuses to deal with are when health challenges have impacted a debtor’s ability to pay. The most important thing in these situations is to be supportive and offer solutions that ensure you can still try to manage your own cashflow without coming off as heartless.

If they have been in hospital or off work with illness, you can assure them you don’t want to cause any unnecessary stress and tell them you’d be happy to arrange a payment plan or other solution to ease the burden. If you can get a credit card payment over the phone, this is preferable as it removes the debt from your books and passes it onto the bank to handle.

Financial difficulties

There are varying levels of financial difficulty that typically arise when debtors attempt to get out of repaying their debt. There is genuine hardship where they have lost their job, or less significant “hardship” where it is down to their own poor financial management such has having too many other expenses.

“There are always going to be rational reasons why some customers haven’t repaid their debts on time but making an excuse doesn’t mean a debtor is exempt from paying completely.”

For genuine financial hardship, work with the debtor to establish a realistic instalment arrangement that they can manage in their current circumstance. Ensure you receive their agreement in writing in case they relent on their commitment.

One of the most common excuses we receive is that the debtor has too many other debts to pay and once these are paid they will be able to pay us. In circumstances like this, it’s important to be stern and emphasise their obligation. You can empathise with their position but for these debtors, the risk of repeat offending is high. As a “gesture of good faith”, suggest they make an initial payment to get you out of the way and arrange a payment plan – you can even ask them how much they can afford to pay each week until the account is paid off.

Disputing payment

Some of the most creative excuses come when debtors either dispute the bill or try to get out of it on technicalities. We’ve received every excuse under the sun, from this being the first time they’ve heard of this debt to not being able to find the right payment details. No matter the excuse, the best solution is to get the debtor on the phone and push for an immediate resolution.

If they claim they are disputing the debt, there are two things you need to ask them:

  1. Have you raised this dispute with us previously and, if not, why?
  2. Please detail the dispute and the amount of the debt which is being disputed.

If they are only disputing part of the debt, have them pay the undisputed amount over the phone and let them know you will look into their dispute.

We often find debtors, and particularly repeat bad-payers, will dispute debts as a delaying tactic in the hope the creditor gives up seeking repayment and writes it off. If the debtor is disputing the entire amount and you find this is unwarranted, you need to take a firm line and clearly articulate you will be referring the debt to a collection agency should they fail to meet your payment terms.

The most important thing for every debt is to maintain a friendly and helpful dialogue with your client but they need to remember that, notwithstanding the excuse, they still have an obligation to pay the account.

Provided you demonstrate that you are prepared to be reasonable in offering them additional time or will consider an instalment arrangement, you’ll find most debts can be recovered with little fuss.

Roger Mendelson, CEO, Prushka Fast Debt Recovery

This story first appeared in issue 24 of the Inside Small Business quarterly magazine.

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