Often, in both first party and third party collections, payment in full isn’t going to happen, and a payment arrangement is entered into. When that happens, this can be a huge opportunity to work with a consumer, rather then steamroll them, but it’s also an opportunity to have things fall apart if the right steps aren’t taken in the beginning.
While every client is different, and securing arrangements on a Mercedes-Benz delinquent account to cure it would be far different than payment arrangements on a payday loan account, here are a few rules to live by.
Setting Expectations On Both Sides
If you are entering into a payment arrangement, allowing a consumer to ‘pay something around the end of each month’ isn’t nearly as clear as “200 dollars by pre-authorized payment every 30th of the month towards a balance of $2087.50, and as long as payments clear, interest charges will be frozen”. If someone wants to enter into payment arrangements, set a schedule up front.
As well, make sure the consumer or commercial customer know that payment arrangements are a privilege, and explain the benefits of keeping their arrangements – this could be a cessation of interest, continued credit and purchasing ability, or even withholding the file from going to collections or being reported to the credit bureau.
When communicating by email or by letter, make sure you reiterate the arrangements, the benefits of keeping those arrangements, and the remaining balance every time.
Locking In The Arrangements
It’s frustrating to see an inexperienced third party collector getting a consumer to come to the table and make arrangements, and then not taking the extra step to lock in the arrangements.
Let’s say, for example, a consumer owes a private label credit card debt of $1500 and agrees to pay $150 a month – if the consumer provides pre-authorized payment details, and the payment is made by automatic withdrawl, everyone’s benefitting. The collector can email or call the consumer after each payment, use positive reinforcement, and advise of the balance remaining.
When the arrangements are left open, such as the consumer promising to mail the payment at the end of each month, the arrangements become fluid, with the payment arriving on the 3rd, the 7th, or even the 15th because the consumer forgot to put it in the mailbox. Follow up calls become necessary, and the consumer lacks a sense of commitment or urgency after missing a payment, and eventually the whole payment plan falls apart because the collector hasn’t enforced their authority.
If you can’t arrange a PAD or pre-authorized credit card payment, at least set firm deadlines for receiving the payment, not when it is issued, and establish consequences such as interest being applied each time a payment is missed, or even to the extreme of the payment arrangement being null and void, and payment in full being expected. The important thing is to maintain the initial arrangements.
When Payment Arrangements Go Awry
Sometimes payments bounce, or consumers call in saying they have lost their job, or other things that throw a monkey wrench into the arrangement established a few months ago. While you want to keep authority in the matter, you need to be somewhat flexible. If a consumer calls in advance to change the arrangements, you should bend a little – however, if the consumer is on their second NSF payment in two months, it’s time to determine the arrangements have failed, and go back to square one presenting the full amount owed, and renegotiate what is going to happen.
I have personally seen consumers establish payment arrangements that they have kept for years, and the client receives payment in full – sometimes it takes a while, and sometimes there’s interest accumulated, but it’s far better than steamrolling the consumer expecting payment in full, or begging for settlements to make a quick turnaround on files. Payment arrangements can be the lifeblood of a collection agency, starting with 2-3 business days’ worth of revenue already established and secured with credit card or banking information, and consumers that are satisfied that the agency is working with them to solve their outstanding account as a partner.
Why wouldn’t you take payment arrangements, and have a clear plan for how to handle this revenue stream?
In our APPRAISE program that deals with our collection strategy, the second “A” stands for “Arrangements” – if you are interested in discussing how this can benefit your company, I’d be happy to offer my advice on how to incorporate it into your credit cycle, if you haven’t already. Feel free to give me a call if I can be of help.
KINGSTON Data & Credit