When your customer asks for a payment extension, make sure to first obtain an agreement in writing regarding the exact balance that they agree is due.
As a commercial collection attorney, I see all manner of defenses that a business will give in court for not paying a bill. Some common examples are: “you did not deliver what we ordered”, “the delivery was late”, “you didn’t credit me for previous payments”, “the goods were defective”.
But let’s back up a moment. Let’s go back to a time before the litigation began when you were attempting to collect on the debt through your credit department. Your customer has just missed a payment and is now asking for an extension. This is a very important moment in time. What should you do? If handled correctly, you can avoid a lot of disputes, delays and expenses down the line.
The idea is that you want to get an agreement from your customer as to the exact amount they will agree is due. You want to get this agreement in writing. And only once you have that agreement will you be willing to even discuss a payment extension.
Under the law, this agreement is called an “Account Stated”. An account stated has been defined as “an agreement between parties who have had previous transactions that the account representing those transactions is true and that the balance stated is correct, together with a promise, express or implied, for the payment of such balance.” McHugh v. Olsen, 189 Ill.App.3d 508, 545 N.E.2d 379, 383, 136 Ill.Dec. 855 (1st Dist. 1989).
An Account Stated is a very powerful thing. It means that the debtor (i.e. your customer) has already agreed to what is due. Thus, any arguments that they could have raised relating to late deliveries, incorrect crediting of payments, defective goods, etc. are irrelevant. If you have taken these defenses away from the debtor in advance of the litigation, then the litigation itself will proceed faster. Importantly, the case will easier to prove and a lot less expensive because your attorney will not have to spend time refuting the customer’s defenses.
So, don’t give something for nothing. If your customer wants additional time to pay, first require that they admit what is due in writing.