Can a payment come back to haunt you?

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…. THE RISK HIDING IN EVERY PLAN

Payment plans are classic examples of the “Correlation vs. Causation” trap. Most clients see them as positive because the customer is TRYING to pay a past-due balance with good intentions. UNFORTUNATELY, payment plans can also be early warning signs of insolvency and possible bankruptcy filings…. And THERE lies the hidden risk.

A “CLAWBACK” is when a bankruptcy trustee seeks to recover payments your customer made before filing bankruptcy. One of your strongest defenses to a Clawback is the “Ordinary Course of Business” defense, which basically says… “Mr. Bankruptcy Trustee… this payment was normal. They’ve always paid on these terms, and this was business as usual.”

Here’s the problem….. Under Federal bankruptcy law, the standard preference lookback period for payments to regular vendors is 90 days. In some circumstances however, the lookback period can extend to one-year OR MORE.

What does this mean to you? If you approve a payment plan and the customer later files bankruptcy, you virtually lose your ability to argue that those payments were made in the ordinary course of business.

Here’s an example.

A customer owes you $100,000, and you agree to $10,000 per week for 10 weeks. They make nine straight payments, totaling $90,000, and then file bankruptcy. You THINK you dodged a bullet because you recovered $90,000 of the $100,000 owed…..but…that might not be the case.

Because those payments were made under newly negotiated terms, a bankruptcy trustee may seek to CLAWBACK some or all of the $90,000, that might have cleared your bank a year ago!

The lesson? When a customer proposes a payment plan, consider the Clawback risk BEFORE agreeing. Research obvious signs of financial trouble, understand how far the payment terms deviate from the customer’s normal history, and whenever possible, keep payment plans SHORT.

That wraps up our series on The Art of the Payment Plan! Up next, we’re tackling Final Demands, where we’ll cover proven best practices, common mistakes, and the pitfalls you need to avoid.

If you want to watch more of my videos, head over to Corey’s Playbook at www.vericore.com. …… Don’t see what you need? ….. Email CoachCorey@vericore.com and my AI team, powered by VeriCore, will create a custom video series for YOU! Coach Corey OUT!