Dos & Don’ts of a Payment Plan

Normally on this blog we give advice to our clients and creditors who are owed money. The pandemic and resulting economic impact are causing many companies to struggle financially for the first time.  Here are some tips for both debtors and creditors considering a payment plan as a way to resolve an issue. If you or someone you know is struggling with their personal financial situation, we recently published blogs for dealing with collection agencies and lower credit card limits. Here are eight “dos and don’ts” for companies with financial struggles.

DO ask to create a payment plan

Your creditors do not want you to go out of business or declare bankruptcy. They know that if you do, they have little chance of payment. If you are receiving phone calls or letters about debt, ask about the possibility of creating a workable payment plan. If your cash flow is unstable, be proactive and contact your vendors to discuss a payment plan.

DO ask about waiving late fees or interest

There’s a possibility that your creditor might be willing to waive interest and late fees in order to get full payment of the original amount owed. This may make it possible for you to pay the entire debt immediately or have a shorter payment plan. Both of these are in the creditor’s best interest and yours. If your creditor is not willing to waive interest or late fees, consider alternate sources of financing to pay off that debt.

DO consider all your debts and obligations

The squeaky wheel gets the grease. You might receive calls from only one company or collection agency. This may tempt you to just deal with that problem. But if you are behind with multiple vendors, you need to develop an overall plan to stay in business and pay off all your debts.

DO make sure you understand the agreement

Does the person calling you own the debt or are they representing the creditor? Does the payment plan you’re agreeing to have interest built in? What happens if you miss a payment? What happens if you can no longer make any payments? Are you offering collateral? Is this a one-time agreement or is this creditor willing to set up payment plans for future purchases as well? How will this plan affect your credit rating? These are all questions you need to ask and understand before making an agreement. Since you owe the money, don’t be surprised if your creditor wants certain protections in the agreement.

DO get everything in writing

If a creditor or collection agency does agree to a payment plan, get it in writing.  Both parties should sign. Ask for written confirmation of that the debt has been paid, when you reach that point.

DO consult with a bankruptcy attorney or credit counselor

If you realistically have no chance of paying everything you owe, you need to negotiate discounts and viable payment plans. If that isn’t coming together, it may be time to consider personal or corporate bankruptcy. For personal debt, we recommend you talk to a credit counselor first.  Perhaps they can help you negotiate a viable plan.  For businesses, an attorney that specializes in bankruptcy will usually give a free consultation.  But don’t have any illusions that you can file bankruptcy and keep your business alive long-term.  That happens in less than 5% of business bankruptcies.  It takes capital to survive bankruptcy and if you don’t have it, then this typically is the final chapter.

DON’T forget about taxes

The federal government and some states are delaying the date when taxes are due.  In some cases they are waving interest and late fees for extended periods.  Consider delaying tax payments and use funds for payment plans with creditors.  But do this only if you know you eventually will have the money to pay taxes.  If your business closes, you could end up with personal liability for some types of unpaid taxes and that is a situation you want to avoid.

DON’T panic

No one likes to owe money and the process of dragging the payment out over several months can make you feel anxious. A payment plan is a sensible way to get your bills paid and reduce stress. Both you and your creditor want to find a solution. Don’t let your embarrassment or fear get in the way of a good negotiation. Payment plans can be an excellent way to pay off your debt while maintaining good relationships with your vendors.

At The Kaplan Group, we know this is a difficult time. We want to reassure you that we are here to support you. Our staff is fully functional while working remotely. As expert negotiators, we can create payment plans for your debtors that ensure you receive the money you are owed in a timely fashion. We avoid the common mistakes and make sure our clients are protected while working out viable plans. Now is not the time to delay escalating cases. The creditors who escalate promptly are more likely to get paid than those that simply ‘hope for the best’. If you have problems, please, reach out and let us know how we can help.

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