Negotiate a payment plan

When a customer faces cash flow difficulties, negotiating a payment plan can be a sensible alternative to immediate legal recovery. The objective is to obtain payment through a realistic, closely monitored agreement while preserving the commercial relationship whenever possible.

There is a risk, however: helping a customer through a temporary difficulty may create loyalty, but extending credit to a business that cannot recover may increase the supplier's ultimate loss. A payment plan is therefore a credit decision, not merely a collection arrangement.

Payment plan or moratorium?

These two arrangements respond to financial difficulties, but they do not have the same effect.

In business-to-business relationships, a clear contractual payment plan is generally preferable to an uncertain moratorium that simply delays the issue. A temporary payment holiday may nevertheless be justified in some circumstances, provided its duration, conditions and subsequent repayments are clearly defined.

Before negotiating: assess the customer's good faith and ability to pay

The first essential question is whether the customer genuinely intends to pay and has a credible prospect of doing so. Good faith alone is not enough: the proposed instalments must be supported by expected cash receipts.

Use the following questionnaire before proposing or accepting a schedule.

1. Identify the causes of the financial difficulties

• What caused the cash shortage: declining sales, seasonality, unexpected costs or delayed payments from the customer's own buyers?
• Is the problem temporary, or does it reveal a structural lack of profitability or liquidity?
• What corrective measures has the customer already taken?

2. Investigate payment delays with other creditors

• Are other suppliers also being paid late?
• Are taxes, social contributions or other public liabilities overdue?
• Are there registered liens, enforcement measures or other signs of serious financial stress?

3. Check future payment obligations

• Can the customer pay upcoming invoices on their normal due dates?
• Will the proposed plan simply create new overdue invoices while older ones are being repaid?
• Are new orders expected, and under what payment conditions?

4. Assess the expected cash inflows

• Which cash receipts are expected, in what amounts and on what dates?
• Has the customer prepared a short-term cash flow forecast?
• What happens if a major expected payment is delayed?

Only after this diagnosis can the supplier determine whether an instalment plan is appropriate and what amount the customer can realistically commit to each period.

Principles for negotiating an effective payment plan

1. Request an immediate partial payment. Even a modest initial payment provides a practical indication of the customer's willingness and ability to act. It is not, by itself, proof of future solvency.
2. Keep the repayment period as short as realistically possible. A schedule that is too long prolongs the supplier's exposure; one that is too ambitious is likely to fail.
3. Set precise amounts and dates. Avoid vague commitments such as “as soon as cash improves”.
4. Secure the arrangement where possible. Depending on the situation and local law, consider guarantees, suitable payment instruments or additional security. A cheque or bill of exchange does not eliminate insolvency risk.
5. Control new exposure. Review the customer's credit limit and consider deposits, cash with order or shorter payment terms for future deliveries.
6. Obtain a signed written agreement. Confirm the debt, the schedule and the consequences of missed instalments.

Do not confuse helping a customer with financing an uncontrolled deterioration. The supplier's cash flow is not unlimited either. The plan must be viable for both parties.

Illustrative repayment schedule

Suppose a customer owes €24,000 in overdue invoices and can make an immediate payment of €6,000. The remaining €18,000 could be repaid over three months, provided the customer's cash forecast supports it.

This is an illustration, not a recommended standard duration. The best schedule is the shortest one that the customer can actually honour.

Formalise the agreement in writing

A signed payment plan provides clarity for both parties and useful evidence if the agreement is breached. Its precise legal effect depends on its wording and the applicable law; it should not automatically be equated with an enforceable court judgment.

The agreement should identify:

• The parties and the invoices covered, with amounts and due dates.
• The total acknowledged balance, including any agreed interest or charges.
• The amount and date of each instalment and the method of payment.
• The treatment of new invoices and future orders.
• Any guarantees or additional security agreed by the parties.
• The consequences of a missed instalment, including any acceleration clause where legally valid.
• The treatment of existing rights and remedies, including whether interest or other claims are waived or preserved.
• The date, names and signatures of authorised representatives.

In some jurisdictions, a payment arrangement can be incorporated into a formal settlement or approved through a judicial procedure. In France, an ordinary privately negotiated payment plan is not the same as a court-supervised conciliation procedure under insolvency-prevention law. The latter follows specific conditions and may lead to a formally recorded or approved agreement. The appropriate route depends on the debtor's situation.

Monitor every instalment and act immediately on deviations

Once signed, the agreement is only the beginning. Each instalment needs an assigned owner, a scheduled control and a defined response if the payment is missed.

• Record the agreement against the relevant customer account and invoices.
• Schedule follow-up actions for every agreed payment date.
• Check that funds are actually received and correctly allocated.
• Contact the customer immediately if an instalment is missed; do not silently roll the debt forward.
• Reassess risk and future sales conditions whenever the customer's circumstances change.

Credit management software such as My DSO Manager can record payment-plan statuses, customer commitments and comments, schedule dedicated actions and flag missed payments. The purpose is to make the agreement operational and visible to everyone involved, not to replace the Credit Manager's judgement.

What if the customer enters insolvency proceedings?

Formal insolvency proceedings can fundamentally change the supplier's rights. In France, for example, the opening of safeguard, reorganisation or liquidation proceedings generally restricts individual recovery of pre-opening debts and requires eligible creditors to declare their claims within the applicable deadlines. Special rules and exceptions may apply.

Do not continue collecting or renegotiating pre-opening invoices as if nothing had happened. Identify the procedure, the relevant dates and the party authorised to receive claims, then obtain advice appropriate to the jurisdiction. New supplies and post-opening debts may be subject to different rules.

Conclusion

A well-negotiated payment plan can help a customer overcome temporary financial difficulties, avoid costly litigation and preserve a valuable commercial relationship. If the customer recovers and honours the agreement, the supplier may gain a loyal partner.

But this is a double-edged decision. A payment plan should only be granted when the customer's willingness to pay and realistic repayment capacity have been assessed. It must be documented, combined with appropriate control of future exposure and monitored without complacency.

The objective is not to obtain a promise of payment. It is to obtain the payments promised.