When your customer comes to you, typically after not paying you for months or longer and asks you for an interest free long term payment plan, here’s what I recommend you do.
Since your customer is asking you to be the bank, be the bank. Tell your customer that you are willing to consider their request for a long term payment plan but like the bank you’ll need them to complete a loan application first. Either have the forms on hand (you can obtain them from your nearest Bank of America, Chase, Wells Fargo or comparable bank) or tell your customer to get a loan application form, complete the form and submit it to you. Ask them also, what security or collateral they can offer you during that long term payment period and who else (in addition to the customer, who is likely a small, struggling corporation or other small business) will be signing the personal guaranty and ask for a loan application from that person as well. If this is a regular ongoing issue for your company make sure to have the loan application forms on hand and ready to give to your customer(s). And don’t forget to ask for 2 years personal and 2 years business tax returns and a year to date statement from the business.
When you are armed with all of the foregoing, you can make a decision as to rate of interest, terms, amount of payment, collateral/security and requiring one or more guarantors, just like the bank. Even if you agree to the long term payment program (sometimes, in my experience, just asking for the above, substantially decreases the repayment period) you’ll be armed with a considerable amount of valuable information about your customer (and guarantor) and hopefully with either some security or collateral for the debt and/or a guarantor.
If your customer balks or refuses to provide any of the above, view it as a rather large red flag and a reflection of what might be the customer’s true intention of not paying you and to just buy more “free” time.
So be that Bank!
Let me know if you have any questions.
Robert