When a customer falls behind on their payments, what’s your first instinct?
Send another reminder? Pick up the phone? Threaten legal action?
Sometimes, those steps are necessary.
But over the years, I’ve found that understanding why a customer isn’t paying can be just as important as chasing the money itself.
Not every overdue invoice is the result of a customer refusing to pay.
Some businesses experience seasonal fluctuations, unexpected expenses or temporary cash flow difficulties.
And in those circumstances, a carefully structured payment plan can sometimes produce a better outcome for everyone involved.
Let me give you two examples from my own experience.
Example 1: The Gift Trade Business
I once dealt with a business based in the Western Isles that specialised in the gift trade.
Like many seasonal businesses, its income depended heavily on trade shows.
The owner could only afford to attend a limited number of events each year, and one of the most important was a major gift show held in February.
Unfortunately, the business had fallen behind on its payments.
Three invoices were overdue, late-payment charges had accumulated, and the owner was also struggling to meet staff and supplier commitments.
It would have been easy to continue demanding immediate payment.
But that wouldn’t necessarily have improved the situation.
Instead, we looked at the business’s circumstances and agreed on a structured repayment arrangement.
The outstanding balance was divided into three payments:
- 30% in the first instalment
- 30% in the second instalment
- 40% in the final instalment
This gave the customer a more manageable way to clear the debt while providing the creditor with an agreed payment schedule.
The lesson?
Sometimes, giving a customer a realistic route to payment is more productive than repeatedly demanding money they cannot immediately produce.
Of course, the arrangement needs to be affordable, properly documented and monitored.
A payment plan is only useful if the customer can actually meet it.
Example 2: The Pub With Seasonal Income
Another case involved a pub in West Sussex.
The business experienced relatively quiet trading periods, with much of its income linked to motoring events held twice a year.
Unfortunately, the pub had accumulated arrears relating to its trading account and loan commitments.
Again, the obvious response might have been to demand the full balance or threaten legal proceedings.
But the business’s seasonal income presented an opportunity to consider another approach.
Rather than immediately escalating matters, we agreed on a payment arrangement that took the pub’s trading patterns into account.
The arrangement included ongoing payments of approximately £100 per week, alongside a plan to address the outstanding balance as trading improved.
This gave the business some breathing space while allowing the creditor to maintain contact and work towards recovering the money owed.
The lesson?
Understanding how a customer’s business operates can make a real difference to debt recovery.
A seasonal business may have genuine difficulties meeting the same payment commitments throughout the year.
That doesn’t mean the debt should be ignored.
It means the repayment strategy needs to reflect commercial reality.
What Makes a Good Payment Plan?
A payment plan shouldn’t simply be an informal promise that a customer will pay when they can.
It needs structure.
Before agreeing to an arrangement, I’d suggest considering a few important questions.
1. Why Has the Customer Fallen Behind?
Is this a temporary cash flow problem, a genuine dispute or a sign of more serious financial difficulties?
Understanding the cause helps you decide whether a repayment arrangement is appropriate.
2. Can the Customer Afford the Payments?
There’s little point agreeing to instalments that the customer is unlikely to meet.
A realistic arrangement is generally better than an ambitious promise that falls apart after the first payment.
3. Are the Terms Clear?
Make sure the amount owed, instalment amounts, payment dates and consequences of missed payments are documented.
Both parties should understand exactly what has been agreed.
4. Will You Monitor the Arrangement?
Don’t agree to a payment plan and then forget about it.
Keep track of the payments and follow up promptly if an instalment is missed.
5. Is the Arrangement Commercially Sensible?
Not every customer should be offered additional time.
If there are repeated broken promises, signs of insolvency or concerns about recoverability, further investigation or a different recovery strategy may be necessary.
Payment Plans Aren’t About Letting Customers Off the Hook
One concern I sometimes hear from business owners is that offering instalments makes them appear too lenient.
I don’t see it that way.
There’s a difference between giving someone endless extensions and agreeing to a properly managed repayment arrangement.
The objective is still to recover the money owed.
But sometimes the most effective route isn’t the most aggressive one.
In both examples above, the aim was to find a practical solution that recognised the customer’s circumstances without losing sight of the creditor’s interests.
And that’s an important part of effective credit control.
Could a Payment Plan Help Your Business?
If you’re dealing with overdue invoices, it can be difficult to know whether to keep negotiating, offer instalments or consider more formal recovery action.
At Talk to Ron, we help businesses assess their options and find practical ways to recover outstanding debts.
Sometimes that means negotiating a realistic payment arrangement.
Other times, it means recognising that a different approach is needed.
The important thing is having a plan rather than simply hoping the money will arrive.
If you’d like to discuss an outstanding debt or review your current credit control approach, request a call and let’s have a conversation.