Debt collection is a tricky business regardless of the type of consumer you are dealing with, the product or service provided, or the current economic environment.
Whether you are a small business owner struggling to collect from your customers or a commercial debt collector working on contingency fees, anyone tasked with handling collection efforts today should be making every effort to improve their odds of success.
Many debt collection situations reach a point where the creditor considers taking partial payments or setting up a payment plan. While this is not an ideal situation, sometimes it is a better option than not getting any payment at all.
If your collection attempt has reached the point where you are entertaining the idea of negotiating a partial payment or payment plan with your debtor, you will want to ensure you get the best deal possible. For that reason, it pays to understand the negotiation process well.
With that in mind, here are 20 tips for improving the outcome of your debt collection negotiations:
1. View Every Interaction as a Negotiation
The first way to improve your negotiation technique is to view every single interaction you have with a debtor as a negotiation. This way, by the time the debtor realizes that a negotiation is taking place, you will already have the upper hand.
Remember that viewing the interaction as a negotiation does not mean you can’t be friendly and professional with the person you are contacting. Just make sure you don’t lose sight of why you are interacting with them in the first place.
2. Start with a Reminder
One of the best ways to start a negotiation is to remind the debtor about the debt details. Every once in a while, you might catch someone who honestly forgot about a debt. It is also possible that a debtor has cleaned up their act and a simple reminder is all they need to make a payment.
Even when these lucky situations don’t occur, you will still be starting the negotiation out on the right foot by reminding the debtor that they owe you for products or services that have already been delivered.
3. Have Accurate Information
One of the easiest ways to appear strong in a negotiation is to have a strong grasp of the facts of the situation. Take a few minutes before speaking with the debtor to refresh yourself on the details of the case.
This is much easier to do if you have a quality CRM system in place so that you can have all of the information you need right when you need it.
4. Do Your Research
In addition to knowing the facts about the case, doing a little research online might help you find some leverage that can be used in a negotiation. For example, it would be hard for a debtor to tell you they are broke if you see their new car on Facebook.
Improvements in privacy settings are making this type of research more complicated than it used to be, but you will likely be surprised by how much information people are willing to post about themselves on the internet.
5. Stay Polite & Professional
The best way to get the most cooperation out of a debt recovery negotiation always involves staying as polite and professional as possible. Remember that the goal of the negotiation is to get the debtor to pay you as much as possible, so staying courteous and professional is your best bet.
It’s commonly said that you catch more flies with honey than vinegar, and being polite and professional is the way to make that happen in the commercial debt collection negotiation business.
6. Remain Calm
Debt collection is a frustrating part of doing business. There is a good chance that your debtor will attempt to make excuses for not paying you. When this happens, you can’t let yourself get aggravated or upset.
Have a plan in place for how to keep yourself calm if the person you are negotiating with frustrates you. Take a few deep breaths, count to ten, remain calm, and look for a solution.
7. Approach Negotiations as Equals
Regardless of how you truly feel about the person you are negotiating with, treating them as if they are inferior will only push them to spite you. It won’t push them to pay you. Treating someone as an equal will make them far more likely to want to work with you.
Finding common ground in any negotiation always starts with establishing a level of respect. Make sure you show respect for the person you are dealing with, and communicate that you expect the same from them.
8. Be Realistic
There is a good chance that your debtor simply doesn’t have the ability to make a payment. You have to be realistic about what you expect to get from them. You can’t squeeze blood out of a turnip!
If you do your research heading into a negotiation, you should already have a good idea of what a debtor may or may not be able to agree to. And if something comes up that is different from your expectations, give yourself time to process that new information and consider alternative solutions.
9. Send a Clear Message
Make sure that you clearly state your expectations to the debtor. Don’t sugarcoat the situation. Spell out your debt collection terms very specifically.
Because you have already established a level of professionalism and respect in this negotiation, you should also be able to clearly communicate your message with no room for misunderstanding.
10. Have a Concrete Minimum
As part of your preparation for the negotiation, you should have a solid idea of the type of deal you would be willing to accept.
You should also know the bottom basement number you are willing to accept, and you need to be prepared to walk away completely and attempt something else if that floor is not met.
11. Find Out the Reason
What is the reason that this invoice collection situation got so out of control? Sometimes, if you simply ask a debtor what went wrong you will find out that it is only a temporary problem or that help is on the way.
In these cases, you may be able to structure some form of a moratorium to help the debtor get through their rough patch before resuming regular payments. Understanding what went wrong in the first place is the best way to find these types of solutions.
12. Ask For Comments
After clearly stating your intentions, asking for comments is a great way to gauge how receptive the debtor is to a potential deal. Ask them to comment on what they think would be an acceptable solution.
Once again, the more information you can acquire about the debtor’s situation, the more likely you will be to stumble onto a possible solution, which is the ultimate goal of every good debt collection agent.
13. Require a Counter-Offer
After you hear their comments on the situation, ask them to make an offer or counter an offer you already made. This will give you a baseline to work from, and in some rare cases, they might even suggest a deal you would be thrilled to accept.
Even if the offer they suggest is way outside the realm of something you might consider, the simple act of opening up the potential of getting a deal done could go a long way toward actually doing so.
14. Don’t Counter Immediately
Whatever offer or counter-offer the debtor makes, you should never accept or counter it immediately. Take a moment to process the offer and analyze all of the working parts.
Offering up a counter too quickly could indicate desperation on your part, and you always want to appear calm, cool, and collected when discussing the numbers involved in a possible transaction.
15. Ask For a Good Faith Gesture
Whether you reach an agreement or not, ask for the debtor to make some sort of gesture of good faith. This could be a partial payment or offering some form of collateral on the amount owed.
In many cases, the good faith gesture works to get the ball rolling in the right direction, and that can be all you need to start moving towards a resolution everyone finds agreeable.
16. Don’t Force the Issue
There is a good chance that the debtor is not capable of making payments at this time. If that is the case, don’t burn any bridges that you might regret later.
Just because a debtor can’t come up with the funds right now doesn’t mean they won’t be able to do so soon. Keep those lines of communication open so you can be first in line if they happen to come into some money down the road.
17. Confirm the Deal in Writing
If you reach an agreement with the debtor, make sure you write down all the details and have both parties sign that they understand and agree.
Emails and text messages will be your best friend here, but there is nothing quite like a formal contract signed by all parties involved. Having this formality makes it much more likely that the deal will be completed successfully.
18. Clearly Explain the Ramifications
Make sure you clearly state exactly what you will do if the debtor fails to live up to your agreement. Let them know how those actions will impact their financial future, and don’t make the mistake of failing to follow through with those efforts.
19. Remember Follow-Up Letters
Whatever the deal is, you should send a series of follow-up letters to ensure the agreement stays on track.
Everyone might be on the same page today, but that probably won’t be the case as your repayment plan ages. Follow up with letters explaining every detail of the deal and what you expect from the debtor so there won’t be any excuses down the road.
20. Hold Them to Your Deal
Make sure to hold up your end of the deal. If you threaten legal action on a certain date, you must file on that exact date. Any delay will make you appear weak, drastically reducing your odds of reaching a reasonable solution.
Debt collection negotiations will never be a fun topic of conversation, but having a slight edge going into any of these talks could mean the difference between getting paid and not.
Make sure you are doing everything in your power to line up the odds in your favor so you can enjoy more successful collections and less aggravating ones!
