“How do I recover my money from a debtor?”
Financial institutions offer loans to businesses and individuals. Businesses use the fund to operate and individuals use it for their personal needs. The deal is that after a stipulated time, the debtor is expected to return the loan at an agreed interest. Aside from financial institutions, ordinary individuals lend money to other people with unwritten contracts. However, the problem is not in the issuing of loans. The problem is in getting it back, as things do not always go as planned.
You may want to check out this post about how to identify people that wont pay back their loans
A Short Sad Story
Meje borrowed the sum of ₦50,000 in early January and he promised to repay the loan by the end of the month. He needed the money to foot an urgent medical bill. You have known this guy for years, and you feel like you can trust him. But it’s April now and you haven’t heard a word from him, he acts like he can’t remember. He even bought a new 2014 Toyota corolla, and you can see him popping champagne at Hustle and Bustle on his status.
Sounds familiar? wetin you go do? Hopefully, by the end of this article, you would be able to answer the question “how do I recover my money from a debtor” and learn a thing or two about how to get your money back.
Creditors who expect to be repaid get stuck with people who default on their loan. And due to dire economic indices, the number of loan defaulters in Nigeria is on the rise. In the fourth quarter of 2020, Nigerian banks reported that their non performing loan (NPL) ratio increased to 6% with N1.1 trillion of arrears (20% higher than what was set by the CBN). With these numbers, it is imperative that everyone learns how to recover debt from customers in Nigeria.
A lot of people do not pay back their loans when it is due and it could be because of:
(a) Poor Money Management
Some Nigerians have bad money habits. They use loans to buy liabilities with depreciating values; things they cannot afford with their own income. Others spend without having a plan of paying back. For businesses, it could be that they do not keep proper financial records. As a result, they cannot regulate how much money they spend and eventually run at a loss.
(b) Unforeseen Circumstance
Certain businesses, even with every intention of paying back, default on their loans because of unforeseen circumstances or disasters. They could lose their goods to a natural disaster or their business could fail.
This might sound crazy, but some people do not like to repay loans. To them, loans should be forgotten and they would rather use their monies for something other than the repayment of a debt. They have a habit of taking and not giving back. Such people are stubborn and difficult to handle.
Check out this post about the two types of debtors and how to handle them
“How Do I Recover My Money From A Debtor?”
It must be said that the best way to avoid loan defaulting is to stay away from offering loans. The process of recovering debt starts at the beginning, even before the issuance of loans. However, if you are a lender and you are dealing with defaulters, these are a few tips on how to recover debt from customers in Nigeria:
1. Contact Their Guarantors And Loved Ones
Before offering any amount of money to people in the form of loans, you want to make sure that other people are aware of it. I advice that you ask the receiver to present a guarantor or two, no matter how little the loan amount is. People who are unwilling to involve third parties in the loan process have a higher tendency to default on loans. Type out a simple agreement on a sheet of paper and ask them to sign along with their guarantors, preferably parents or religious leader. It’s your money, do not let anyone make you feel like you are doing too much. Once you are able to put a guarantor security in place, you may now have some leverage as a result of social capital.
Loan defaulters may be uncooperative after you have informed them that they have passed their due date. Reach out to their guarantors or their next of kin to let them know about the situation. Never give loans to people who want to deal in secrecy, you have less leverage in this situation. You always want to be in the position to shame them.
Guarantors will readily put pressure on the defaulter to repay the loan. Especially as they themselves are at risk of losing their property and reputation. Also, if you reach out to their family, superiors at work or someone of high social standing in their community, they will quickly remit their loan as they would not want to be disgraced.
2. Create A Written Contract That Allows You Collect A Valuable In Place of Debt
If you are an individual lender, you stand a higher risk given the fact that you have less legal presence and less fear factor. Granted, you are not a lawyer, but you want to add a additional layer of security to your dealings. One way to do that is to write out a clearly defined set of actions that will be taken if the person borrowing from you fails to repay the loan.
If you are offering a loan of ₦50,000 to Meje, you can add that you would collect his iPhone 7 plus as repayment for his debt if he refuses to repay the loan in due time. As you can expect, this document is legally binding since it will be signed by the receiver and other witnesses. I would always advice that you get a lawyer to do your drafting. But you can do it yourself, especially considering the fact that you do not want to spend any money on legal fees. You can get a free loan agreement from this site.
3. Use Debt Recovery Agencies
Some agencies specialize in debt recovery, they are able to negotiate and persuade debtors, collect payments and even confiscate property (you see why 2 above is important?). These agencies usually employ persistent follow up techniques to make sure debtors pay their loans. They track debtors payment arrangements and keep your company informed as to the progress of the debt recovery at all times.
These agencies also specialize in tracking down defaulters that have gone into hiding.
4. Employ A Legal Practitioner
In some cases, debt recovery becomes violent. People become unnecessarily verbose or confrontational when they are asked to repay a huge debt. You can get back your loan by engaging the services of a lawyer who is skilled at resolving conflict through litigation and mediation.
Usually, your lawyer will draft a letter of demand and send it to the defaulter, informing them that they will be consequences if they do not pay back the debt on a due date. This is after the lawyer has gathered significant evidence regarding the debt of course. The letter of demand contains the amount owed, the time frame in which the defaulter is to pay back (this is usually between 7 to 14 days) and the legal action that will be taken against them should they fail to pay back on time.
Such a letter from a legal practitioner lets the defaulter know it isn’t child’s play anymore, and they will quickly return your money. This goes without saying but always have a legally binding document and have your customers sign it before you give them a loan.
5. Enter Into A Payment Plan
People who owe are classified under two strata.
(a) Those who are unwilling to pay, simply because they are terrible people.
(b) Those who are unable to pay, because they overestimated themselves and really do not have the money at the moment.
While your lawyer can deal with those who are unwilling to pay, we would also suggest you go the softer route by pitching a payment plan to a debtor who is unable to repay a debt as a result of dire economic situations. This enables the debtor meet the commitment by splitting the debt into smaller bits and repaying it in time. Even though you lose as a result of the depreciating value of the cash asset, you can be sure that your money will arrive in trickles.
So before you ask “How do I recover my money from a debtor?”, you must realize that you have a 50% chance of losing all your money if you start the loan process poorly. Meanwhile, you can look below to find some of our recent articles specially curated for you
My name is Emmanuel Ejiga. Content lead of OG Capital
I am a writer. Technical writer, song writer, and sometimes fictional writer.