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Gravity Debtors Management Masterclass- Lesson 3

Disputes and relationships

Key point covered in this lesson:
• Preventing disputes by knowing how they happen
• Strategies to deal with disputes yourself
• Where to draw the line – relationship vs cost
• The cost of disputes
• When all else fails, what do you do? 

 

Preventing disputes by knowing how they happen

Although each dispute is very often quite different from the next, they do tend to share common traits and very often happen for the same reasons. These reasons might not always be as clear cut as one would think and very often come down to individual perception of the situation.

 

Timing

If you promise a customer that you would tend to their need “in no time at all” that might mean two very different things to the parties involved. If your normal turnaround time is four weeks and you think you might get to them in two weeks, that would feel pretty efficient to you. But if they were expecting you to show up the next day and you didn’t, they might feel that they are getting a raw deal. 

Clients regularly make businesses wait for their money if they feel they had to wait excessively long for what they pay for. Things like delivery dates and when work will commence and be completed need to be stipulated with exact dates and durations. Or at the very least scope of dates.

 

Quality

Very often the perception of quality is relative, and determined by what something is compared to. In many cases the perception of what a quality product or service looks like is determined by an expectation which was set early on. Some businesses oversell their products or services to gain market share, and then later have issues with disputes because their marketing created unrealistic expectations. 

Make sure that the description of what is supplied is in line with what will actually be delivered and be careful to not create unrealistic expectations. Also try and find ways to measure quality with readily available standards to substantiate your quality claims.

 

Cost

Disputes over cost are the most common type of dispute and it is not unheard of for a customer to leave a bill unpaid entirely over a small variation or difference they are not comfortable with. Cost needs to be determined and approved beforehand, as well as every variation and change following. By simply doing this most of the possible disputes will never happen.

 

Buyers remorse

There are very few cases where buyers remorse can be used as a refute to make an agreement undone. These cases are almost exclusively limited to transactions on credit contracts from retailers, and door-to-door sales transactions. 

Despite this, it would be wise not to totally dismiss a client who offers buyers remorse as a reason for non payment. Better results will be achieved by entering into positive conversation with the customer and trying to arrive at a mutually beneficial agreement.

 

Reluctance to pay

Even when you do everything by the book, you cannot control customers’ personal financial situation. Often non-payment is a direct result of cash flow issues that get passed on to you. Vetting customers beforehand can assist with preventing this situation but even the best of businesses sometimes experience financial constraints. Being open to finding a workable payment plan is often the best avenue to follow.

 

Strategies to deal with disputes yourself 

There are many options to consider before escalating a dispute, but the difference between success and continued resistance is very often how you go about it more than what you do. Taking an aggressive stance more readily results in a standoff than an actual payment.  

Act quickly 

Many business owners put off dealing with disputes because it is not very enjoyable. While it is good to be in the right state of mind, it is also important to act quicker rather than later.

 

Reassurance – a lot of it

When communicating with a customer that is reluctant to pay, or is disputing some aspect of the payment or product, it goes a long way to assure them that your intention is to arrive at an amicable resolution, and not to try and punish them without understanding their frame of mind. Tell the customer that you are interested in ensuring their satisfaction and that you are merely trying to understand their view and reason for non-payment.

 

Apologise

Whether you think you are at fault or not, that is not the point. The point is that it is the opinion of the customer that you are. So apologising from the start gives them reason to engage further. Apologising does not mean that you are accepting that you are at fault and it does not mean that you agree with the customer’s stance. It simply means that you acknowledge their dispute whether it is through some mistake, or misunderstanding. The apology can be simple and neutral, for example, “I am sorry that the situation made you unhappy, but I can assure you that I will do everything in my power to reach some agreeable outcome for both of us.”

 

Allow customers to vent

It is not fair or right that people take out their frustrations on you. But it happens. In cases where  customers are venting it is a good idea to give them a little time to blow off steam without antagonising them further. Very often after a rant, especially one where the other party is not ranting back, the customer might calm down and be more open to reason. 

In cases where the venting keeps escalating, it might be a good idea to tell the customer in a polite way that you suggest the conversation continues after they have had a bit of time to calm down and regroup. Something like, “I think I might have caught you at a bad time. Will it be better for you if I call back later or tomorrow?”
might work better than trying to reason further.

 

Really listen

The important thing to remember with dispute resolution is that you are not trying to convince the customer that they are wrong. You are trying to understand why they are not paying. This involves really listening to unravel their thoughts and beliefs that in their mind justifies their action. 

One way to really get them to open up is to ask many questions. Even when you know the answers to the question. Getting them to answer will often reveal some misunderstanding or misconception on their behalf. It is a lot easier to solve the problem once you fully understand it from their point of view.

 

Repeat what the customer says back to them

Although this sounds like an odd thing to do, the fact is that often once someone else repeats your words, they sound a lot different. If a customer tells you why they are unhappy, and you repeat what they say back to them, they know that you are listening and get to hear their reasoning from someone else. This very often places a new perspective on their views or convictions and might just let them realise that maybe they are not as reasonable as they thought.

 

Follow up and revisit previous resolutions

As soon as the customer is open to mitigate and negotiate any form of payment agreement you need to set a specific date and keep them to it. If a commitment can not be measured in terms of amounts and time, then it is just a postponement. Set down a time. Set down an amount. Confirm in writing to them and follow up when the specified date arrives.

 

Where to draw the line – relationship vs cost

The above are all amicable routes to try and resolve a dispute in a mutually beneficial manner. They work in many cases but unfortunately there are cases where a client just consistently refuses to pay without any reasonable grounds to do so. 

Resolving a dispute through these channels is preferential since it is likely to ensure that a good working relationship is maintained. Unfortunately there are cases where this is not possible and the potential loss of money outweighs the potential for future business. To be blunt, sometimes maintaining a relationship with a client that refuses to pay just isn’t worth it. 

If you find yourself in this situation and none of your sincere attempts at reaching an agreement was successful, it might be time to consider other options.

 

The cost of disputes

There are two costs associated with dispute resolution. The first is the cost of the dispute staying unresolved. This refers to the outstanding debt. The second cost is associated with the process of dispute resolution. In other words what it will likely cost to resolve the dispute.

If the loss suffered due to the dispute remaining unresolved is far greater than the cost of resolving the dispute, then it is definitely in your interest to pursue dispute resolution. If not, it might be the best option to write off the debt and move on. 

The cost of resolving a dispute can vary greatly depending on the chosen method. There are many options to choose from but the premise remains the same that if you and the debtor were unable to reach an agreement and resolve the dispute, the help of a third party might need to be employed.

 

When all else fails, what do you do? 

There are many options available when seeking third party assistance with non paying customers that are not open to your attempts at resolving the non-payment. Below are the most common options and some basic information about each. 


Third party collection agencies 

Quite often there is no real dispute other than reluctance to pay. Third party debt collection services like Gravity Credit Management Service specialise in collecting payments and entering into payment arrangements with customers who default on payments. 

The big advantage of using such services is that a third party negotiates on your behalf, which saves you the time and effort and assists in maintaining a good relationship going forward. 

If your payment agreement is set up correctly they can also assist without any cost to you as their fees will be payable by the overdue debtor, commonly in the form of interest due on outstanding debtors. 


Private mediator

There are countless private dispute resolution agencies that offer third party mediation services.  These services are good in that they are less formal and have more flexible rules than the trial court, and are also less expensive than going to court. 

The disadvantage of private mediation is that the mediator assists the parties to jointly reach an agreement, but is not able to legally enforce any agreement. It is still up to the the parties to comply on their own. 

There are two professional membership associations specifically for dispute resolution practitioners. They are the Resolution Institute (formerly LEADR) and the Arbitrators’ and Mediators’ Institute of New Zealand (AMINZ). 

 

Government mediation service

The New Zealand Government offers dispute resolution services in the form of the Disputes Tribunal where you can settle disputes involving small claims (up to $30,000) so you don’t have to go to court. Decisions made by the tribunal are legally binding, which means you must follow its decisions.

Although there are fees involved in this process, they are quite small relative to the formal court system. 

 

Formal court system

When claims exceed $30 000, or parties prefer the formal court system, parties can enter into civil litigation. 

Civil litigation is a process where civil disputes between individuals, corporate entities or other legal personalities are resolved. Civil litigation is often perceived as attending a Court and obtaining a judicial decision.

Civil litigation can be timely and expensive but the judgement is binding and enforceable.  

 

Useful resources

 

 

 


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