Every Accounts Payable department knows that there are two types of debtors: those who won’t pay and those who can’t pay. Identifying where your debtors lie will save you a great deal of time and money when trying to recover debts.
Won’t Pay vs. Can’t Pay
If a client won’t pay, your debt collection efforts are likely to have little or no effect. Your best recourse is to hand the matter over to a professional debt collection agency and pursue legal options.
If a client can’t pay, you may still have the opportunity to recoup part or all of the debt, though possibly over a longer time frame. However, any collection strategy needs to be weighed up with both ethical and legal obligations relating to debtor hardship. Unlike a debtor who won’t pay, those who can’t pay are worth negotiating with to try to find some sort of agreement that works for both of you.
Identifying those who won’t pay
There are some people who refuse to pay for goods or services, believing there will be no repercussions for their actions or that they can somehow avoid them.
Signs that your debtor falls into this category are if:
- they avoid or ignore your attempts to contact them
- they deny their liability for the debt
- they blame someone else for the debt
- they threaten impending bankruptcy
- they change their name or address
- they claim they didn’t receive the goods or service
- they hide the goods to prevent them from being repossessed
- they go on the offensive and threaten legal action.
The time and money spent chasing these debtors can be significant and you often end up with nothing to show for it. In these circumstances, it is usually better, and more economical, to leave the debt recovery to professionals.
Identifying those who can’t pay
Not all debtors are ill-intentioned. Many find themselves in circumstances beyond their control as a result of unemployment, a failing business, ill health or a number of other factors.
You can often identify debtors who can’t pay when they exhibit actions such as:
- Contacting you first, before you contact them, and explaining why they are behind in their payments.
- Being willing to negotiate on an alternative payment arrangement.
- Applying for a hardship variation (if debt relates to credit), which is a formal request for you to vary their repayment terms.
Working with debtors who can’t pay
If you have identified that a debtor wants to pay you what they owe but are unable to for whatever reason, then you may want to negotiate an agreement that both parties are happy with.
Remember that the debtor could be a future long-term customer and their inability to pay may be only a temporary setback. As such, it is important to make your negotiations as amicable as possible in order to maintain the relationship.
The agreement might allow for the debt to be paid off in instalments over time or for a reduced amount to be paid in a lump sum now or at some time in the near future. The agreement, whatever the terms, should always be in writing.
The debtor needs to be made aware of the repercussions if they default on this agreement, and any defaults should be followed up promptly. To reduce the chances of this occurring, it is often a good idea to make this agreement somewhat flexible, giving them the best chance of honouring it. Initially, you should try to get them to pay as much of the debt as possible in the first instalment. Then ideally you should arrange for subsequent payments to be direct-debited from their account.
Finding an acceptable solution
Negotiating an instalment arrangement is often the fastest and most cost-effective way to deal with unpaid debts where a debtor does not have the means to pay all of the debt at once. In the event legal proceedings are commenced and judgment obtained it is highly likely the debtor won’t have the assets to pay the debt and you will receive only a portion of the debt amount and incur significant legal costs in the process. Also, depending on the size of the debt, you may recover the total amount in instalments in a shorter period of time than it would take to issue proceedings, obtain judgment, bankrupt a debtor and recover your debt and costs.
Professional Debt Recovery for you …contact
Debt Recovery Associates. Persuasive, Persistence, Professionalism
Town Office-View Park Towers ,10th Fl ,Utalii Lane /
L584-off UN Avenue, Gigiri.
P O Box 27859 00100 Nairobi, Kenya
Tel +254-20-221 1382/362
Cell: +254 712 636 404