Creditors often prefer to work out a payment plan with debtors rather than sending the debt to collections because payment plans can provide a more reliable and consistent stream of income over time, reduce costs associated with collections, and help maintain a positive relationship with the debtor. Payment plans allow creditors to receive smaller, manageable payments from debtors who may be experiencing financial difficulties, increasing the likelihood of recovering more money in the long run than through a one-time payment or collections process. Additionally, payment plans avoid the negative credit reporting and aggressive collection tactics that come with collections, which can harm the creditor-debtor relationship and increase the risk of non- payment or bankruptcy.
Creditors may also prefer payment plans because they can adjust the terms over time if the debtor’s financial situation improves, providing flexibility that a collections or settlement agreement does not offer. This flexibility may increase the total amount repaid. Furthermore, payment plans can help creditors avoid costly and time-consuming legal proceedings related to debt collection.
In summary, creditors favor payment plans over collections to maximize debt recovery, reduce collection costs and risks, and preserve a potential ongoing customer relationship.
