Small Payment to Determine Integrity


This article on debt collection advice originally appeared in CreditToday which provides advice to Credit and Collection professionals who sometimes need a collection agency like The Kaplan Group.

It is frustrating, or worse, when a business customer does not pay their first open invoice on time. Perhaps something just happened at the customer’s business after the credit decision was made that has resulted in cash flow problems. But, there is also the concern that this is just a ‘bad apple’ that was not observable during the credit evaluation process. When trying to collect, whether in house or when assigned to a collection agency, quickly determining which is the real situation can have a big impact on deciding how to proceed and ultimately collecting the money.

In recent articles we’ve talked about methods to determine if a debtor is telling the truth. But, in a situation where a business has never paid a specific vendor, regardless of the documented circumstances, the overriding question is: “Will this company ever pay anything?” The only way to know is if they make a payment.

Convincing a delinquent debtor to make a small payment can help establish integrity and may lead to increased debt collection success.In collections, we are all concerned about establishing a bad precedent by accepting a small payment. We don’t want customers or debtors to get the impression that small payments over a long term is acceptable. Nor do we want them to think that a small payment from time to time will prevent a vendor from taking more aggressive action. But, at some point with a first time customer who has never paid, finding out if they have integrity is more important than the concern about setting a precedent.

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When these accounts come to our collection agency, we quickly pivot to this integrity question if our standard collection efforts don’t result in immediate payment. We use ‘transparency’ as a way to determine if we are working with a professional debtor or a potentially viable payer. We explain to the business owner or executive that we need a small payment just to establish their integrity, and if they can’t afford as little as $100 (on smaller claims), we have to assume they will never pay anything unless forced by the courts. We of course explain that this does not set any precedent regarding size and timing of future payments, but is simply to determine their integrity.

We have found that this technique frequently is successful in getting payments from some companies, and this does impact the collection process going forward. Even more importantly, if a company refuses to make even one small payment, it tells us and our clients a lot about how we should handle the claim. This same technique can be used by in house collection departments to give insight on how a specific account should be handled.

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