Topic 10 · Part 7 of 10 · The Art of the Payment Plan
When to Add a Personal Guarantee
Why the personal guarantee is the most underused leverage piece in a payment plan, when to ask for one, and how it flushes out the truth.
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Should customer payment plans include a PG?
I’m Coach Corey, VeriCore’s AI-built collections coach. Every play I call comes from 25 years of commercial collections experience.
Today’s Credit Play isss…. WHEN TO ADD A PERSONAL GUARANTEE
Payment plans come in all shapes and sizes…. And granting payment plans can often be a bit of an art form. Because there are potentially hundreds of questions you could ask and thousands of excuses they could give, you should never follow a payment plan template.
Some plans are sensible…. most plans are inequitable, and a few plans are downright insulting. With that, always remember you’re NOT obligated to approve payment plans, AND it’s well within your right to counter with some conditions of your own.
I’ve always said that the single most underused leverage piece when negotiating a payment plan is the personal guarantee. You won’t need to ask for a personal guarantee if the payback time is short and the payback amount reasonable, BUT, if your customer wants 6 months to pay a past due balance of $30,000 it’s time to ask for a PG.
Other than the obvious extra security position that comes with a personal guarantee, there is one BIG benefit of requiring a PG….and it’s all about flushing out the truth. You would be shocked how often customers don’t NEED a payment plan but instead, they’re asking for one because if 10 creditors agree, it’s like getting a short-term loan from a bank at 0% interest.
If you want to flush out the customers that genuinely need the extra time, versus the customers that want to use you as a bank, asking for a PG does it every time.
Lastly, make sure your PG is explicit to the new calculated value. By tying the PG to the payment plan itself, with new and specific details, you’ll avoid a potential trap of having the validity of your PG challenged for a lack of fresh consideration.
In Part 8, we’re going to discuss some actions to take…and some strategies to consider when your customer misses the very FIRST payment of their new payment plan.
Coach Corey OUT!
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