If you are serious about collecting your debt, you need to re-negotiate the payment agreement and set up a valid debt repayment plan.
Many people asked me about the essentials of a good debt repayment plan.
It is important to realize that by planning the debt repayment plan realistically and precisely you have a much better chance of collecting it and can get out of debt faster. You will significantly speed up the debt repayment process, if the planning stage is done thoroughly.
It does not matter if you are a debtor or the creditor – a good debt repayment plan will help you both and it needs input from both sides for it to work.
What are the steps in preparing an effective repayment plan?
1. Prepare the debt analysis
Both sides, the creditor and the debtor need to agree on the outstanding debt. Have a list of all debts to be repaid, with details, (e.g., how long they have been outstanding for, any payments/part payments already made, balance outstanding and payable as at the date the payment plan is being done).
2. Review your budget
If you are a debtor, try to be as realistic as possible in how much you can pay on a regular basis. A little tip: commit a little bit more than your comfort zone. You will be amazed how much you can stretch your finances when you have a repayment structure and purpose. If you are a creditor, you should also be very clear on how much in a part payment would be acceptable.
3. Agree on the repayment frequency
Make sure that both sides agree on the instalment frequency. The repayments have to be regular. Why is this important? Payment regularity creates trust with a creditor and builds a good habit with a debtor. Keep payments regular for a while and both of you will notice a kind of easiness and renewed purpose.
4. Work out your payment schedule
Having a precise schedule for payment dates helps both sides budged and plan. Go through the calendar and write down all scheduled dated on the payment plan, even if the dates go few month in advance. Seeing the printed day and date makes a much stronger impact on a debtor, and much more likely that he will pay attention to the schedule in advance.
5. Agree on the payment method to be used
Discuss on the payment method that best suits both parties. Is it going to be an EFT payment directly into your bank account, a cheque, cash or a credit card? If you are paying with /accepting a Credit Card, make sure you both know in advance any additional merchant charges involved. Weigh the bonuses vs. loses before you both commit to the method.
6. Monitor and record all payments promptly and issue receipts
Monitor the scheduled payments. Know precisely if any payment was missed and quickly act to follow it up with a reminder. Know what your debt situation is in at any given time. Record all payments promptly an issue separate receipts that are sent to the debtor.
7. Send Final payment notification
After the final repayment / instalment payment had been received, prepare the final notification receipt that the debt had been entirely paid off and thank the client.
8. Understand what contributed to having a debt plan actioned
Try to summaries why the debt could not be paid in accordance to the original terms and conditions. If there are few similar cases in your business, maybe your Standard Payment Terms and Conditions should be reviewed and adjusted. As a debtor, you should try to grasp an understanding of why you got into bed debt in the first place.
9. Get smarter with your finances in the future
The experience of going through the repayment plan should be a great motivator to change some habits / techniques / terms in the future in order to improve future finances. This new financial wisdom might be the most valuable lesson out of the whole bad debt repayment experience.
If you follow these nine steps, you should be able to draft an effective debt repayment plan. If you monitor and review the repayments, you will be surprised at how quickly you can pay off your debt. As an added bonus, should you still have problems in getting the payments, this new repayment plan should improve your chances at getting the payments honored through the Legal System.