Dealing With Difficult Debtors

Managing debtors can be one of the most challenging aspects of running a business or managing personal finances. Difficult debtors, who may delay payments or refuse to pay altogether, can cause significant financial strain and disrupt cash flow. Effective strategies for dealing with these debtors are crucial to maintaining financial health and business stability. But how on earth do you do that, especially when tensions are already running high?

Keep Open Communication

The key to resolving issues with difficult debtors is communication. Far too often companies will fail to communicate with their debtors until it’s too late, which leads to complications and disagreements. It’s important to start communication early, to approach the situation with empathy and a willingness to understand the debtors’ circumstances. That often means you need to initiate a conversation with the debtor yourself, listen actively to what they are saying, and be willing to negotiate and discuss options with them.

Make Sure Agreements Are Formalised

When dealing with difficult debtors, it’s important to formalise any agreements to ensure clarity and commitment. Written agreements provide a reference point for both parties and can be crucial if disputes arise later. There are three steps you should follow for this:

• Draft payment agreements: Put new payment plans or extensions in writing, detailing the amount owed, payment schedule and any interest or penalties being applied.
• Require signatures: Ensure both parties sign the agreement so that there is a record of mutual consent and understanding of the plan.
• Document communications: Keep records of any and all communications your company has with the debtor. This includes emails, phone calls and messages to create a paper trail. This will be useful if legal action needs to be taken later.

Implement Structured Payment Plans

If your debtor is facing genuine financial difficulties, structured payment plans can offer a practical solution. These plans break down the total debt they owe into smaller, more manageable payments over a specified period of time.

To do this, you will need to assess their financial situation to work out an appropriate payment plan, along with a realistic payment schedule that the debtor can stick to without putting them in more distress. Once agreed, you will need to dedicate a resource to monitor their compliance with the payment plan. Structured payment plans can reduce the likelihood that the debtor will default again, and mean that you can recover the money owed gradually.

Call In A Professional

When direct negotiation fails, a debt collection professional can be a good way to resolve disputes. You could bring them in as a mediator if there has been a problem with the client, or you could hire them to take on the debt collection actions on your behalf. An experienced debt collector will be able to look at your progress so far and provide tailored support to help you recover that debt. During this they might suggest compromises, such as repayment plans or partial payments – try to be flexible and open to these options, as it may be your best option depending on the situation. By involving a professional you can maintain the relationships with your clients, as well as potentially avoiding legal proceedings.

Prepare For Legal Action

If a debtor is being particularly evasive, or you don’t believe they are going to pay willingly, then you may want to prepare for the possibility of legal action. This should always be a last-ditch attempt but it might be a necessary one to recover the debt. This means you will need to seek legal advice from a professional to understand the options open to you. They will advise you to gather all of the relevant documentation and evidence you need to support your case. If you’ve been working with a debt collection agency (like us), then they can help you with that stage as well. Legal action can be incredibly effective, but it should always be approached with caution.

Use Technology To Your Advantage

Modern technology offers a range of tools to help manage and recover debts more efficiently. It can also help you streamline the debt management process and improve efficiency when you’re trying to recover overdue payments. Technology also allows you to do things like:

Use debt management software: Platforms like QuickBooks, Xero and other accounting software come with some credit and debt management features built in. Things like tracking payments, sending reminders and managing your accounts receivable can all be very helpful in keeping on top of who owes you what and when.

Automate reminders: Automated systems can send out reminders for your invoices in the run-up to them being due and on the due date. They can also send overdue notices, reducing the need for manual follow-ups.

Access credit reporting services: Before you take on new clients you should always run some form of credit check on them. Services that provide credit reports can help you to assess the customer’s creditworthiness and make more informed decisions about extending credit. It can also be helpful later on if you’re trying to decide whether to take legal action.

Dealing with difficult debtors requires a balanced approach that combines empathy, negotiation, and firmness. By understanding the debtor’s situation and using these strategies, you can resolve disputes, recover owed funds, and maintain healthy financial relationships. If you’re struggling with difficult debtors and don’t know where to turn, we are here to help. Just get in touch with the team today to book a free, no obligation consultation.