When credit managers are tasked with debt recovery from customers who have failed to pay up their debt, it often causes much unhappiness between all parties including the credit manager. Being dealt a task that requires great sensitivity and emotional intelligence, credit managers are often being exposed to underlying human emotions and personal difficulties the debtor may be experiencing during debt recovery.

When all attempts to recover the debt fail, litigation is commonly used as a final resort. While litigation is one solution to deal with recovering debt, it is often not the best or preferred solution. Besides having to spend time taking the case to court and awaiting an outcome that you cannot determine, going for a mediation session could prove more effective and satisfactory. By bringing in a third party mediator who acts as a neutral party and sole purpose is to help both sides work toward resolution, mediation enables negotiation of solutions toward a joint agreement.

As compared to litigation, mediation has the following advantages:

  • It is more cost effective than litigation, since both parties share the cost of mediation benefiting the business and the debtor. It also allows for quicker resolution of cases, which helps in cutting down on the legal costs and maximises the value of the debt being recovered as quickly as possible.
  • It is quick and easy to arrange, all to your convenience. Only one party needs to contact the mediator and the mediation session can be held at the earliest date when both the parties are available. This is unlike litigation where a date will be given based on court availability and both parties will have to make themselves available at that date.
  • Mediation is less intimidating compared to litigation since it is held at a time and place that both parties find convenient and have agreed on. The mediation environment also offers privacy that makes both sides feel comfortable thus facilitating easy and open discussions.
  • Mediation is also a completely confidential process, which protects the reputation of the debtor as well as the credit manager and the organisation. Going for mediation will help prevent the case from going public which can be harmful to everyone.
  • In a joint session, both parties will be given opportunities to share their perspective about the issue and express how it affects them. This builds compassion and empathy as both sides gain a greater understanding of the situation from the perspective of the other. This encourages a willingness to cooperate in order to seek a satisfactory outcome for both the business and the debtor.
  • The biggest advantage mediation has is that it can allow for creative solutions as opposed to going to court where a judgement is passed on the case and leaves little room for negotiation. Through mediation, it is possible to work out feasible payment plans that do not overburden the debtor while ensuring that the credit organisations get the owed amount back with agreed default provisions that can be made enforceable. Both credit managers and debtors are free to discuss and choose an outcome that is best suited to their interests. This ensures both sides walk away feeling heard and satisfied with the outcome.
  • Building on the fact that mediation enables creative solutions, it also gives more power to both parties to control the topics for discussion and the flow of the conversation. They get equal chance to present their point of view, express their expectations and constraints and work with the other side to arrive at an agreeable solution that best meets their needs and expectations.
  • Bringing about a mutually satisfactory outcome by going for mediation also helps preserve current business relations between the creditor and debtor. Litigation on the other hand usually results in strained relations that ruin any chances of future business transactions between the two parties.

Debt recovery for credit managers is never a pleasant or an easy thing to do. Using mediation as a debt recovery solution however could help credit managers chase up on those debts by working toward a joint agreement with the debtor. In this way, not only will the mediator be able to get the sum back, the debtor too would also be at a much comfortable situation to repay the loan owed, resulting in a win-win solution for all.

In our next blog, we’ll share more on tips for credit managers to maximise their debt recovery with mediation. If you have any comments or questions, we’ll be more than happy to address them, let’s talk!