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The term ‘payment arrangement’ often carries a negative connotation for many people. Many people view payment arrangements as a last resort before you permanently part ways with a customer. However, this is far from the truth.
Payment arrangements: flexibility that retains customers
Of course, there is a group of customers who genuinely cannot pay their outstanding invoices. For this group, a payment arrangement is indeed “a stay of execution”.
But for the other, much larger group, a payment arrangement serves as a valuable tool to manage an unexpected, occasional setback in their financial situation. In such cases, customers actually perceive a payment arrangement as very positive. By offering a bit of flexibility, you provide your customers with a positive experience and keep them loyal in the long term.
Key considerations for setting up payment arrangements
If your credit management software does not sufficiently support payment arrangements but you wish to implement them, keep the following points in mind:
- Different Situations
Each customer and situation is unique. Therefore, you need a degree of flexibility to establish the right payment arrangement. Consider factors such as the number of installments and the amounts you expect at each stage. - Compensation
Since you have to wait longer for your payment, you may want to negotiate some form of compensation, such as applying an interest rate to the outstanding amount. - Communication
Clearly communicate what has been agreed upon with your customer so they understand the expectations associated with the arrangement. - Extended outstanding invoices
Invoices involved in a payment arrangement remain open for a longer period and are paid off in installments over time. Naturally, this impacts your cash flow. - Pausing the reminder process
When you set up a payment arrangement, you pause the reminder process for the relevant invoice(s). This prevents the customer from proceeding through further stages of your reminder process. - Reminding of payment deadlines
Send reminders that are tailored to the payment arrangement. A reminder should be sent shortly before each installment is due, to ensure the customer knows that a payment is imminent. - Direct debit mandate
You can arrange a direct debit mandate with your customer, allowing your organization to take the initiative in collecting the agreed installments. With automated direct debit, you can collect the amounts easily. - Manual payments
If you leave the payment initiative to the customer—opting for manual payments—ensure that you monitor whether the partial payments are actually made and in accordance with the agreement. You should also track whether direct debit payments are successfully completed and not reversed later. - Closing message
Once the customer has completed the payment arrangement, you should send a confirmation message after the final payment. - Resuming the original reminder process
If the customer fails to adhere to the payment arrangement, you should notify them and resume the original reminder process.
The challenge of manual payment arrangements
As you can see, managing payment arrangements involves many steps that need to be carefully monitored. This can be burdensome for your team if you handle everything outside of your systems and standard processes, especially with a large customer base and multiple payment arrangement requests. This could easily become a full-time job for an employee, which is obviously not the goal.
Automating payment arrangements for efficiency
We recommend fully automating these processes within your credit management software. All the steps, dependencies, and checks mentioned above become an integral part of your daily workflow, eliminating all the manual tasks in one go!
As long as the customer sticks to the agreement, the process continues as planned. However, if the customer fails to comply, the system automatically reverts them to the regular reminder process.
It probably comes as no surprise that the Abillity® platform is a complete credit management system. Automating payment arrangements, including a variety of features, is standard functionality in Abillity®.
