With global recession sending ripple effects across less developed countries like the Philippines, it’s easy to expect a rise in overdue accounts and collection suits nowadays. If you’re not in the business of lending money, I suggest that you hold on to your cash to save yourself the headache of having to collect from friends.
For those, however, who can’t turn a blind eye on a friend in need, temper your warm heart with some cold techniques to increase your chances of collection or to cut your losses later. Here’s what will help:
Lend only what you can afford to lose.
The value of money is relative– what could be loose change for others may be hard earned cash for you, worse, it could be your monthly utilities budget. Consider your personal needs first and lend out only what is truly extra cash for you or you may end up borrowing money from someone else as well. Moreover, lending out a small amount increases its chances of getting paid.
Ask for security.
Follow the lead of pawnshops and banks by asking for something of value that you can hold on to while your loan is unpaid. It could be a watch, small piece of jewelry, that Louis Vuitton purse or anything that approximates the amount of the loan. That way, your friend will have the motivation to repay you or risk not seeing the “collateral”.
Ask for post-dated checks.
Financial companies do this as well. If your friend offers to pay you back in two months, break down the loan in chunks, say 4 payments, and secure these with checks that are post-dated. When each of the checks fall due, you need not remind your friend to pay but simply deposit the checks to collect. Checks that bounce or are returned unpaid due to insufficiency of funds or closed account will expose your friend to criminal liability under the Bouncing Checks Law and/or Estafa. While you may not want to sue your friend for her unpaid debt, hopefully, the issuance of the post-dated checks will serve as a deterrent for non-payment.
Put it down in writing.
It is always good practice to write down verbal promises, agreements and the fact of receipt in case things go awry. As friends, you may cringe at the thought of asking your borrower to sign a receipt acknowledging the loan or the fact that you lent her some cash. The choice is yours whether to suffer a moment of discomfort today or months of regret later when your friend conveniently forgets about the loan.
These are not guarantees, however, that loans to friends will be paid as other factors can come into play, such as the history of financial irresponsibility, actual cash position, and even moral character of your friend. When a debt is overdue, you should take immediate steps to collect it. If the loan is in a substantial amount, your best next move may be to seek the advice of a lawyer.