What are Payment Arrangements?

In credit cards, there are several ways to entice delinquent clients to pay. First, you can offer to reverse their charges when they update their accounts. However, not all clients will be enticed to do this even if you offer to reverse several months’ worth of finance and late charges. In fact, there’s a possibility that many of them will express difficulty in paying the minimum amount due of their credit cards. 

Despite their financial condition, some of these cardholders will still entertain your agents’ calls even though it’s difficult for them to settle their arrears. Being able to help these clients pay their accounts goes a long way in lowering the delinquent portfolio of any card company. The key is to help the customer and agent reach an arrangement. In order to do this, your company should have pre-approved alternative payment schemes, which your agents can offer to clients. This may come in the form of full settlement discounts or long-term payment arrangements. 

Ultimately, the goal is for clients to settle their debt in a shorter amount of time. This minimizes the risk of default and also enables you to remove their balance from your delinquent portfolio. To do this, you should entice them with bigger discounts or lower interest rates if they pay their balance faster. For example, you can waive all finance and late charges if the client agrees to settle the account in one month or less. If the client requests for a longer term, you can freeze their current balance or even add a small interest, and have them pay it in equal monthly installments. 

Important Note

There are several things that you should take note of before you craft these alternative payment options and have them approved by senior management or your board of directors:

1. You should define who among your delinquent cardholders is eligible for these payment arrangements. For example, you can restrict your agents from offering these special arrangements to accounts that are less than four months on book. You can also limit accounts in delinquency cycle one from getting payment arrangements unless clients can provide medical certificates to justify their request for account restructuring. 

Note that these are just examples, and the eligibility criteria you set will depend on what you and your company deem acceptable.

2. Do not use a one-size-fits-all approach and offer the same rates to everyone regardless of their delinquency status. More enticing payment options should be available to more delinquent accounts. Clients won’t commit to something they cannot afford even if you offer it to them repeatedly. Even if they do, there would be a high likelihood of default. This is why more flexible payment arrangements should be available to clients higher up the delinquency ladder.

3. There should be limits on what your agents can offer to clients. Giving them the authority to offer any term in the payment matrix may be prone to abuse. Some agents might immediately offer the maximum discount or longest term without going through other arrangements that are more favorable to the company. If they do, they instantly lose the benefits of using an anchor. To ensure this doesn’t happen, some payment options should require the approval of their supervisors. By having this set-up, team leaders can also monitor who among their agents frequently asks for exceptional approvals and include this topic in their coaching sessions. 

4. No matter how comprehensive your payment options are, there will still be clients who will not be able to afford them. Some cardholders will express their willingness to pay, but their payment options will still be beyond their means. Outrightly rejecting the client’s request for a higher discount or longer term can backfire on your company. These clients may just enter into an arrangement with another card company or debtor that can be more flexible in their terms. 

To address this, your company should have a policy that allows for the deviation from your alternative payment schemes as long as an authorized officer approves it. The approving officer should be higher up the chain of command depending on the degree of deviation and the amount involved. If it’s a simple case of making the next tier available to the cardholder, your supervisor can escalate it to the head of Midrange or Hardcore. If the request is for a non-written-off account with a balance of less than USD25K, for example, the request can be approved by the collections head. Anything beyond this should be approved by the division or group head. 

You can get a free copy of an alternative payment arrangement matrix when you subscribe to our newsletter using the form below. You can use this document as a guide when you draft your company’s payment arrangement and deviation policies.

5. If you do not have a dedicated special arrangements team that can check each arrangement, your compliance or quality control team should conduct regular audits to check compliance. While they do not need to check each and every offer, they can just get a large enough sample size and check the accuracy of the rates and eligibility of the clients. This ensures that these alternative arrangements are not abused and are only offered to the right customers. 

Conclusion

As mentioned earlier, having the ability to offer alternative payment schemes to delinquent clients goes a long way in lowering a company’s delinquent portfolio. Remember that there is a high probability that your company isn’t the only institution that delinquent clients owe money to. Lending companies that are able to offer more flexible payment arrangements are usually the ones prioritized by these cardholders. This is the reason why companies that deal with credit should have a pre-approved alternative payment matrix in place. Aside from the flexibility it offers, it will also streamline your company’s collection process. Again, if you want a free sample of an alternative payment arrangement matrix, you can subscribe to our newsletter by filling up the form below. Please note that this should only be used as a guide when you formulate your company’s payment arrangement matrix.

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