Dear Doctor,

Do you have any suggestions for how to put together a promissory note for customers that need an extension when they can't pay the full amount owed? I'd like to make a more formal agreement with some of these customers.

Thanks in advance,

Could Use an Assistant Houston

Dear Houston,

First, we want to assure you that you're certainly not alone (not just in your need of a promissory note, but also in your need for an assistant. They both can come in handy in any credit operation).

Often, in the course of normal collection activity, you may negotiate a payment plan with an honest, but financially-troubled customer. Whether the debtor requests a payment plan, or whether you propose one, once you have both agreed on such a plan, a promissory note is a simple -- but very important document that you should use to give weight to your proposed payment plan. After all, you've given something up -- your right to receive immediate payment for your goods.

If you encounter a debtor that is reluctant to sign a promissory note after agreeing to a payment plan, it should be a warning sign. And you always have the leverage of telling the debtor that if they're not serious about the commitment that they just gave to you, and don't want to sign the note, you will have no alternative but to place them for collection.

One of the key advantages of a note is that signing such a document not only gives you something tangible, but it also psychologically binds the debtor to what was originally a verbal agreement, making it more likely he'll follow through.

It's also a good idea to include an "acceleration clause" that gives you the right to demand payment for the entire balance if they fail to meet their commitments as detailed in the note.

Says collection consultant Kay Laffoon of Laffoon and Associates Inc. in North Carolina: "Payment terms should be firm and easily understood. Always attempt to arrange weekly payments instead of monthly payments. Assign the responsibility of follow up on all payment plans to a designated person within your company. Without follow up, the payment plan will not be effective."

Laffoon offers another great piece of advice: send a thank you note to your customer once they payment plan has been satisfied! That will go a long way towards building goodwill in what is undoubtedly an embarrassing and stressful situation for your customer:

Finally, says Laffoon, Keep the form simple and to the point. Keep a copy for yourself and mail a copy to the customer.