How to draw up a payment schedule in 7 steps + Free sample letter!
When your customer can’t pay your invoice in full but still wants to pay you, they may propose a payment arrangement. This means they will pay your outstanding invoice in parts over a set amount of time. As a creditor, you are not obliged to make, or agree, a payment arrangement with your customer. But there may be situations where it makes sense to make a payment arrangement.
So, how do you make a good payment arrangement with your customer? Follow the 4 step-by-step plan outlined below by our collection specialists.
Step 1: Have your client come up with the initiative
Our advice is to always have your customer submit a payment proposal if he cannot pay the invoice in full immediately. Do not take the initiative for a payment arrangement yourself as soon as you notice that your customer cannot pay the invoice. If you show that you can very easily move away from the current payment agreements, this may give your customer the impression that you are not taking payment of the invoice very seriously.
Step 2: What is feasible for your own organisation?
If you agree to a payment arrangement, the payment will be delayed meaning you will have to bear these costs. There will be more administration work to do, which of course, will entail more costs. In addition, you have to deal with any interest costs you may need to pay. You will also need to swallow any initial costs that came with making the delivery and supplying the goods or services. Always check if this is feasible for your organisation before agreeing. After all, you are not obliged to make, or agree to, a payment arrangement with your customer.
Step 3: Check the creditworthiness of your customer
Before you agree on a payment arrangement, it is advisable to check the creditworthiness of your customer. It is possible that your customer's financial situation is so bad that there is no point in making a payment arrangement. If a payment arrangement does make sense: then assess what is feasible for your debtor.
Step 4: Create a concrete payment schedule
Make clear, concrete agreements about the payment schedule that are realistic for both parties:
- What amount should be paid?
- How many instalments should you agree on and what payment dates work you? Our advice is to keep the payment schedule as short as possible and to use as few instalments as possible. The longer the arrangement, the greater the risk that your debtor will not comply with the arrangement.
- What interest is charged on the repayment term? If you so chose to, you can add interest to your payment schedule. This should’ve been outlined already in your contract or general terms and conditions. However, it is important to bear in mind that if your customer is already struggling to pay you, adding additional costs may make it even harder for your customer to pay you.
- What are the consequences of non-payment? What should you do if your payment arrangement is not adhered to? You should make it clear, then any default on, or non-compliance with, the payment arrangement will result in the invoice being immediately payable in full. This means that you can take legal action immediately. In addition, we recommend that you also specify the collection costs that your debtor will have to pay if they do not comply with the arrangement.
Step 5: Record the payment agreement in writing
Make sure that any agreements concerning the payment schedule are recorded in writing. Have the debtor sign this arrangement as well. This will prevent discussions about the payment schedule at a later stage. Are large amounts involved? In that case, it is best to record the payment arrangements in a notarial deed.
Step 6: Follow up on agreements
When you agree a payment arrangement with your customer, you’re helping your customer to manage their debt and responsibilities. However, you are not obliged to accept their payment arrangement, especially if other arrangements have been made previously and have not been stuck to. It’s important to make sure that these new agreements are complied with. Keep a close eye on the new payment terms and take immediate action if payment is not made on time. This will prevent the payment of the invoice from becoming an endless process.
Step 7: Call in a debt recovery specialist
What if your business partner does not adhere to payment agreements? You have already accommodated to your debtor with the payment arrangements. Is your debtor still not paying? This means it's time to call in the help of an external party to recover the debt for you.
Make use of the help of a debt recovery specialist or a debt recovery lawyer. We recommend working with debt recovery lawyers, since they have more means to put pressure on a debtor. Working with a debt recovery lawyer usually has a positive effect, resulting in rapid payment of outstanding invoices and often in one go.
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