Instalment Plans: When and How to Offer Them
An instalment plan can be the fastest way to your money when the customer wants to pay but cannot pay it all at once. Here is how to agree a plan that holds up, legally too.
When does an instalment plan make sense?
Not every customer who pays late is unwilling to pay. Many have a temporary cash-flow problem and want to clear the debt: just not all at once. Here an instalment plan (afdragsordning) can be the fastest and cheapest route to your money. The alternative (debt collection, a payment order or a lawsuit) takes time and costs fees, and if the customer genuinely cannot pay everything, you may not get more out of it.
An instalment plan is typically a good choice when:
- the customer accepts the claim and has a realistic plan to pay
- the customer relationship has value for you going forward
- the amount is so large that the customer cannot pay it in one go
It is a poor choice when the customer disputes the claim, does not respond, or has already broken previous agreements.
Assess the customer's ability to pay
Before you say yes, get an overview of whether the plan is realistic. Ask the customer what they can pay per month, and when. If the customer is a company, check its latest annual report and its status in the CVR register (Denmark's company register). A plan that is too tight is often broken; a plan that is too long ties you to a risk for a long time.
Expert tip: Ask for a first payment
Agree that the first instalment is paid immediately, ideally a slightly larger amount. It shows the customer is serious, and it reduces your risk from day one.
What should the agreement contain?
Always make the agreement in writing: an email the customer confirms is better than nothing, but a signed document is best. The agreement should contain:
- The total amount owed, broken down into principal, interest and fees
- Instalment amounts, payment dates and number of instalments
- Whether interest runs during the plan, and at what rate
- What happens if an instalment is not paid, for example that the entire remaining debt falls due immediately
- How and where payment is made
Interest and fees during the plan
Unless otherwise agreed, late-payment interest under the Danish Interest Act continues to run on the remaining debt: the reference rate plus 8 percentage points per year (section 5). Towards business customers you can in principle agree a different rate. Towards consumers, the Interest Act's rules cannot be departed from to the consumer's detriment, and an instalment plan with interest or fees may in some cases fall under the Danish Credit Agreements Act (kreditaftaleloven), which sets special requirements for the agreement. If you offer consumers instalments with costs, you should therefore get advice or let a debt collection agency or lawyer handle the agreement.
If you have already charged reminder fees, the Interest Act's cap still applies: at most DKK 100 per reminder for no more than 3 reminders (section 9 b).
Instalment plans and the limitation period
An instalment plan has an important side benefit: when the customer acknowledges the debt, for example by entering into the agreement or paying instalments, the limitation period is interrupted (section 15 of the Danish Limitation Act, forældelsesloven). The ordinary 3-year limitation period then starts again. Ordinary reminders, by contrast, do not interrupt the limitation period.
If you get the customer to sign an IOU (gældsbrev) acknowledging the debt in writing, you strengthen your position further. If the IOU expressly states that it can serve as a basis for enforcement, you can under section 478(1)(5) of the Danish Administration of Justice Act go straight to the bailiff's court if the plan is broken, without first needing a judgment or a payment order.
Expert tip: Use an IOU for larger amounts
For larger amounts, the instalment plan should be made as a written IOU, signed by the customer and expressly stating that it can serve as a basis for enforcement. It takes a little more work now, but can save you both time and costs later. Consider having a lawyer draft it.
When the plan is broken
Follow up immediately if an instalment does not arrive. Contact the customer and find out what has happened: it may be an oversight. If payment is not made, you can invoke the agreement's default clause so that the entire remaining debt falls due, and pass the case on. Remember that the debtor must receive a correct letter of demand with a deadline of at least 10 days (section 10 of the Debt Collection Act) before the case is handed over to debt collection, if you already sent a correct letter of demand before the agreement, check with your adviser whether a new one is needed.
Checklist
- The customer accepts the claim and has a realistic payment plan
- The agreement is in writing and states the amount, instalments, dates, interest and default
- Consumers: consider the Credit Agreements Act if there is interest or fees
- For larger amounts: use an IOU with an enforcement clause
- Follow up on every instalment, and act quickly on default
Getting started
A good instalment plan can save both your money and the customer relationship. If the case is complicated, or the customer is a consumer, it can be an advantage to let a professional handle the agreement. Through InkassoHurtig you can get no-obligation quotes from police-authorised debt collection agencies and lawyers. This content is general information and not legal advice.