Topic 10 · Part 9 of 10 · The Art of the Payment Plan
When to Settle Instead
Why payment plans are the epitome of two in the bush, and how your own failed-plan history gives you the starting point for settlement talks.
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Set up a payment plan, or settle and run?
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 SETTLE INSTEAD
Here’s a truth that stings a little for us collectors who want EVERY dime collected…. sometimes…. The smartest play is to settle and RUN.
We’ve all heard the adage…. “A bird in the hand is worth two in the bush” … but payment plans are literally the EPITOME of… “two in the bush”. Payment plans are promises to pay… from customers who already broke a promise to pay… AND admitted to cash flow struggles.
Every week that passes is another chance for a big ol’ hawk to swoop down and kill those promises sitting in the bush. The everyday reality is that many struggling companies are just one bad deal away from going out of business, which is…. exactly why sometimes… it’s better to SETTLE AND RUN.
When evaluating the RISKS of a payment plan versus the REWARDS of a settlement, don’t ask, “How much am I giving up?” Instead ask, “What is a settlement actually worth to me today?”
A struggling customer promising payment in full… BUT… needing a year to pay it off should be discounted by the REAL chance the plan might fall apart. Every client is different, so calculate these odds by studying your own history… with your own customers… on your own payment plans.
Go through the last few years of failed payment plans and ask ONE question…. “How much of the payment plan did they pay before payments stopped?”
Take that number for each failed plan, divide it by the outstanding balance to calculate a percentage…. Then average those percentages together, and THAT percentage becomes your starting point for settlement talks.
If over the last 2 years you had 12 failed payment plans that averaged paying only 62% of their balance before payments stopped….. then offering a 75% one-time settlement on certain payment plan offers might be a fabulous deal.
In Part 10, we’re going to discuss what a “Clawback” is and how it’s a big potential risk hiding in every payment plan.
Coach Corey OUT!
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