I have written many time about the importance of contract to collection of delinquent receivables. Here I am again, because it is that important. It is great to trust people and to have oral agreements with them, but unless and until you commit your agreement to writing, you are exposing youself to the whims and memory of another. And trust me, people often only remember the parts of a deal that benefit them.
Here is an example. I recently made an arrangement with a small business owner to pay a debt owed to my client. The debt was $1,250.00. I knew the business owner was strapped for cash and did not have assets that would make a small claims suit worthwhile, so I offered (and she agreed) to make 4 monthly payments of 250.00, with the balance to be written off if payments made on time as agreed.
The due date of the first payment came and went with no payment received. I advised the debtor that the payment arrangement was in jeopardy. No response. I advised that the payment arrangement was null and void, and billed her for the original $ 1,250.00.
When she received the bill, she contacted me to ask, “I thought we had a deal and I only had to pay $1,000.” Luckily, I had documentation of not only the original arrangement but also her acceptance of the terms. Mind you, these were not lengthly contracts drawn up by my attorney, but simple emails that laid out the terms.
So once more with feeling, as respects payment of debt, here are the contract elements you should commit to writing:
- Exact terms of payment: total amount due, amount of payment(s), date/frequency of payment(s), payee and address of payee.
- Consequences of non-payment: What will happen if payments are not made as stated.
- Bilateral agreement: Customer must agree in writing.
Since I had every detail in writing the debtor had no place to go. In the end, I reinstated the original $1,000 offer, but took payment of $1,000 in a lump sum.
Had I not taken the time to confirm the arrangement in writing, I would have been at a disadvantage. Too many small business owners get caught up in the moment of making a new sale and neglect to document it. They want to close the barn door afer the cows have left.
Take the time, Document. Contracts will be your best friends, time and time again.