A debt management plan is an informal financial agreement. It involves a re-arrangement of how outstanding debts will be cleared. Creditors may be asked to accept lower monthly payments and/or freeze interest, helping you repay your debts at a slower, affordable rate.

Bear in mind, though, that repaying your debt over a longer timeframe might increase the overall cost you have to repay (due to interest). Also, creditors are not obliged to agree to any changes in the contractual agreement – if they do accept the changes, this will usually be for a pre-defined period of time (after which, they may wish to re-negotiate with you – or your debt management company).

By entering a debt management plan, you are defaulting on your original agreement. This will stay on your credit report for 6 years – which could make further credit more expensive and/or harder to obtain for that time.

If you are thinking of entering a debt management plan, it is important to consider the alternatives before you do so. You may find that a different debt solution, such as an IVA (Individual Voluntary Arrangement) or debt consolidation, is more appropriate.

Debt management might be suitable for you if:

• You can’t keep up with the repayments you originally agreed to.

• Your disposable income is lower than £200 (this is the typical minimum monthly payment amount on an IVA).

• You haven’t managed to obtain a debt consolidation loan or remortgage – possibly due to the current economic climate.

• You can afford to repay your debt in less than 5 years (the length of most IVAs).

A debt management plan might not be suitable for you if:

• You don’t have a fixed income. For example, if you earn commission-based pay.

• You won’t be able to clear your debts within a realistic amount of time.

How could you enter a debt management plan?

Debt management can be done on your own. However, you will need to be prepared to deal with any administrative work (such as phone calls and letters) and negotiations with your creditors (probably on more than one occasion).

If you don’t want to manage your debts on your own, you could contact a professional debt management organisation. By doing this, you should benefit from the experience and knowledge that the right organisation will possess. They should have experience of dealing with creditors and might have already dealt with cases very similar to yours – so they should know the best course of action for you to take.

Whether you manage your debts on your own, or go through a professional debt management organisation, creditors will only accept new repayment terms if you cannot afford to meet the required repayments on your current agreements.

To find out if a debt management plan is right for you, you should contact a professional debt management organisation.

Credit control procedures differ from credit control policy in that the procedures is the implementation of the policy.  For example, when something happen (a) is the response to that something.

Having a clear set of credit control procedures ensures that your credit control department runs smoothly.  The following is a list where procedures should be thought about and written down they help to reduce the cost of credit.

Late payment

this is always the most obvious and important within any credit department.  What will you company response to late payment be.  This is a list of options:

• email customer – very quick to send a standard mail and ask when payment will be with you.
• use telephone to call customer – this is the most common method and yields the best results, however it is the most costly and takes the longest therefore it should not be used for small balances that are just overdue but kept for balances that will prove the most profitable.
• standard letters – most companies have a range of standard letters.  The first standard letter should go out automatically if payment has not been received, this should be the most general letter, see credit control letters for more detail.

Credit note requested

it is important to have a clear who does what and approves what for the checking and issue of credit notes.  If there is no clear procedure for credit note issue it is an area where clients will use the “waiting on credit note” to delay payment on an invoice, even if the credit note is only 1% or 2 % of the invoice value.

• have a written request for a credit note – do not let the client let you figure out what they want this will end up in the credit note being requested more than once.
• check and then double check the credit – two reasons.  You are not a charity and you do not give credits unless they are due, sales are often hard to come by without giving them away.  Second, and this is the most common, mistakes are made on credits note commonly, if the credit is not issued for the correct amount it will delay payment also it has to be journaled off the account and another created – this all costs time and money.
• when the credit note is raised  it should have the details of the credit on it and the invoice number it refers to.   The amount of credit notes I have seen that do not have the invoice number on it is frightening, and it makes it difficult to allocate when payment is received.
• the credit note should never be allocated against any other invoice – basic you think but it happens often.

The above is example of credit control procedures and highlights the difference between that and credit control policy.  Take the time to write down all your procedures as it will payoff in the long run.