Elements in the Negotiation Process

"... negotiations commonly follow a four-step path: preparation, information exchange, explicit bargaining, and commitment. ... Negotiation is, in short, a kind of universal dance with four stages or steps. And it works best when both parties are experienced dancers."

Richard Shell

Negotiations with delinquent customers can be stressful and difficult. The customer may feel they are on the defensive. The collector may be under pressure to produce certain collection results.

The negotiation process can be divided into three stages or phases:

STAGE 1: PRE-NEGOTIATIONS

The pre-negotiation stage entails preparing for your negotiation with the debtor to get his/her repayment as soon as possible. It involves getting all the information you need with regards to the debtor and the account that is overdue and analysing the situation thoroughly.

This stage also entails evaluating your leverage in other words how much influence or control you have over the situation as well as the control or influence of the debtor in the situation. You need to determine what you will do to enhance or increase your level of influence on the debtor. For example the threat of handing the account over for legal collections or listing a person on a credit bureau may give you more leverage to get what you want.

You also need to build rapport with the debtor to determine early on if the debtor will cooperate with you or will be difficult to move to action.

Identify and set goals for your negotiation with your debtor. It gives you a clear guideline of what you want to achieve with your negotiations e.g. “I want to get full payment of the outstanding amount within 7 days.”

Set out a clear negotiation plan i.e. how are you going to ensure that you realise the goals you have identified for the negotiation process with the debtor.

STAGE 2: NEGOTIATIONS

The second stage of the negotiation entails deciding on the logistics of the negotiation process i.e. when are you going to make the call to the debtor to negotiate repayments. You also need to be clear on the offer you are willing to make and accept.

You also need to decide on the tactic you will use. I.e. will you state your case, clearly and completely to get the debtor to understand the severity of the matter or use threats to get the debtor to pay his outstanding debt. Will you set a time limitation on making payment? Will you use requests to get payment? What tactic would you use?

Remember: Intimidation tactics are often ineffective. One should rather make use of persuasion to reach an agreement.

STAGE 3: CLOSURE

In the closure stage you need to determine how you are going to get a “Promise to Pay (PTP)” from the debtor. You also need to confirm the agreement for payment with the debtor by rephrasing and recording the promise from the debtor.

Negotiating to Get a Promise to Pay

A collector’s main goal should always be to secure a promise to pay (PTP) from the debtor. However, finding out the reason why the debtor has defaulted may be just as important. The debtor should always be made aware of the consequences of his/her late payment. The collector’s attempts to secure a PTP should be arranged in the following order:

First Attempt

The collector’s first attempt should be to secure a PTP within the next seven days. Should you find that the debtor is only able to pay within the next ten to twenty days, it might be advisable to become more firm and also advise and explain the mounting fees. This may act as a deterrent from further delayed defaulting.

Second Attempt

The second attempt should be to get the debtor to pay 50% of the overdue amount immediately and the rest over the remaining period of days until the next instalment is due.

Third Attempt

If both the first and the second attempt have failed, the collector may have to settle for payment to be made within thirty days. This should be seen as a last option to negotiate.

Constant monitoring is required on an account which has fallen into arrears. It is clear that the debtor cannot be relied upon to make timely payments. Regular reminders are therefore necessary to encourage and enforce regular payments. Should a debtor not stick to the arrangement made, it may become necessary to consider more drastic measures to secure regular payments.

It cannot be stressed enough, that the sooner a collector acts on recovering an overdue amount, the better the chance of total recovery. The collector needs to remind the debtor of the amount and date of the next payment due. Debtors often find it difficult to pay a double instalment, it should therefore be expected that the debtor will only be able to afford a lesser amount. Once the amount has been confirmed, it should be recorded on a collections management system along with the reason for the default.

Some Guidelines for Negotiating with a Debtor

These are some steps that should be taken in negotiations with delinquent debtors:

• Ask what caused the delay in payment.
• Ask how serious the problem is and what the customer is doing to resolve the problem.
• Always ask for immediate payment in full.
• Know what is the least you will accept from the debtor/customer or business entity that owes money before making the collection call.
• Ask the debtor to acknowledge the debt in writing.
• Request a substantial, immediate payment as an indication of the customer's good faith.
• Propose an aggressive repayment plan, and then ask for the debtor's comments about your proposal.
• If the customer agrees to your proposal, arrange for them to confirm it to you in writing - even if it is only an e-mail.
• If the customer rejects your payment plan, insist that they make a counter offer.
• Do not accept any counter offer immediately. Think it over carefully.
• If the customer's proposal is below your minimum acceptable level, reject it immediately. Doing so sends a message that you are serious about the negotiation and are not about to be “taken for a ride” by the debtor.
• Remember that a delinquent customer's first offer is a "sucker" deal intended for inexperienced or unprepared trade creditors.
• Consider asking the debtor to return inventory to clear part of the debt if the inventory has kept its value, and assuming you believe there is little or no chance that the debtor will file bankruptcy within 90 days of returning the product.
• Ask your customer to provide security or collateral in exchange for extended time to pay the debt – assuming you do not already have collateral.
• Approach negotiations as equals. If you do not act and speak as an equal, you will be at a serious disadvantage.
• Ask the customer for additional information that would help you to understand the scope and extent of their financial problems.

We at Compuscan Academy have developed a learning programme on this subject! If you want to learn more about ‘Effective Debt Collection’, please contact Compuscan Academy at Tel: 021 888 6000 or e-mail us at   This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

Compuscan Academy is a credit learning Institute that operates independently to Compuscan serving a very similar client base focussing all of its energies into improving skills of the people that deal in credit and related matters on a day to day basis. If you would like to know more about any of Compuscan Academy’s specialised credit training materials please contact the Compuscan Uganda office and ask for the Managing Director, Michael Malan at Office +256 41 434 7563 or contact us on e-mail: This e-mail address is being protected from spambots. You need JavaScript enabled to view it , or visit our website at www.compuscan.co.ug