Should I Accept a Promise of Payment On an Outstanding Balance From Client’s Future Sales?

Image of two men shaking hands.What happens when a client wants to pay an outstanding balance from their future sales or services? Working with that customer had previously been profitable, but they’ve experienced cash flow issues. For those who wish to continue doing business with a customer who seems to be having difficulties, you need to know how to best position yourself to obtain payment on the aged balance as well as any future sales.

Is there an arrangement that will ensure repayment to you on an outstanding balance and provide future profit from the same customer?

Take for example a client of ours that is a chemical manufacturer. Their customer needs a resin to complete a product made especially for the automotive industry. Their customer has become a slow-paying customer and is way past the agreed-upon terms. They are, however, making weekly installment payments. Without the client’s product, the customer will not be able to fulfill future orders already secured by the automotive company. Having explained that to the resin manufacturer, with our assistance they arrived at the following arrangement:

  • Their customer, the automaker, gave our client a valid lien on some of the funds. The creditor, our chemical manufacturer client, must receive the funds directly for each order. A contract accepted by the automaker and recorded in its system secures and memorializes the payment arrangement.
  • The customer would sign a confession of judgment. If payment, installment or otherwise, is not made in accordance with a predetermined schedule, our client can file the confession of judgment. This enables the client to execute immediately and bypass litigation.
  • It was necessary to reevaluate and change the sales terms. Advance payment for all orders prior to delivery is the customer’s new requirement.

I happily report that all parties – the client, the former delinquent customer and the automotive company –structured a deal that facilitated payment, created comfort, and smoothed the way for a profitable arrangement.

Should you want to continue doing business with a slow payer?

Of course, it is not always wise to continue doing business with a slow-paying customer. You should do an independent analysis before you decide. Consider these steps:

  • Identify the deep pocket – the entity that will have to funds to pay for your goods or services. Structure the deal so that you receive payment directly from that party. Do not filter funds through the slow-paying customer.
  • Get a judgment NOW and lien only unencumbered assets. That is the way to get payment without effort.
  • Change your credit terms immediately.
  • Insist on knowing the clients’ customers. If possible have a lien on your customer’s receivables while you receive repayment directly.
  • Do NOT count on future sales.
  • If the customer wants to keep your arrangement secret from their customers, reconsider immediately.

Set yourself up to guaranty the best chance of receiving payment. You can start with a credit policy review and a more in-depth review of your account receivables. Having a NY Debt Collection Attorney working with you will go a long way to set you up for the best chance to receive payments.