No one wants to deal with non-paying customers, but if a soon-to-be delinquent client proactively asks you to work out a payment plan, consider yourself lucky, says Ashley Bodi,  who manages the offices of RainMaster LLC, her family’s Venice, Fl.-based landscape, fencing and irrigation company.

“With some people, if they run into money problems, you never hear from them, and you don’t receive payment.  If a customer is honest and upfront about their payment situation, it’s easier to work out a plan,” she says.

Bodi says she first noticed an increase customers asking for relaxed payment terms at the beginning of the year.  Many of the people who approached her for payment plans were repeat customers who never had problems paying their balances in the past, she says. 

“I trusted them, so I didn’t see a problem allowing them to pay smaller amounts every two weeks,” says Bodi.

Allowing customers to make payment arrangements can be an attractive option because they can ensure a client’s loyalty after their finances improve, says Tom Karsten,  managing partner of Karsten Tax and Financial in Fort Worth, Texas.

Before a customer asks for help, however, Karsten says it’s important for you to know what your response will be.

Setting the policy.  “Many small businesses don't have formal payment policies in place.  They have an invoicing method they use on a monthly basis, but they never communicate to customers and clients in writing what their terms are,” says Karsten.  “The first step to making arrangements with customers is to identify your own payment procedures.”

As an example, you may decide that all payments should be due within 30 days.  And if that’s a problem, you’ll be more willing to accept relaxed payment terms for some projects, but not others. 

Bodi says she’s more likely to agree to payment arrangements for service-based projects instead of jobs that require a lot of material.  “We still require 40 percent payment upfront for projects that require costly materials,” she says.  “We know that at least then, we won’t lose money on a job.”

Don’t stretch the payment terms too far from the original due date.  “Try to keep receivables current and under a year,” says Karsten.

There may be situations that require even less flexibility.  “If you provide your client with supplies and equipment, and they come back to you for more supplies every month, then the time for payment probably needs to be shorter, perhaps within 90 days,” he says.

Communicating the policy. Once an acceptable payment plan is created internally, not every aspect of the arrangements need to be publicized, says Bodi.

Her salespeople rarely mention relaxed payments when they quote jobs to prospects.  Bodi says if they told everyone the company offers payment arrangements, everyone would ask for it, and that would hurt cash flow.

Bodi notes that even though there’s been an increase in customer requests for assistance, the total number of clients on payment plans is still less than one percent of the customer base, and she hopes to keep it that way.

Once a customer indicates they can’t pay their debts as agreed, however, it’s time to bring up your payment policy and discuss alternatives with them, says Karsten. 

He says the best way to start is with a verbal conversation.  Try to informally work toward a payment situation everyone can live with, he says.  “Be sure to communicate your expectations.  Let the customer know if you’re expecting full payment by the end of next month.” 

Then formalize it.  “Try to get a commitment from them in writing,” says Karsten.

Enforcing the policy. Bodi finds that most of her customers who are on installment plans eventually pay all the money they owe. “Some people will surprise you because they disappear and you don’t receive a cent,” she says. But even with that risk, Bodi says she’s happy that she’s able to work with her loyal clients.