Here's an escalation matrix for getting back your hard-earned money.
As the quote from Hamlet goes, “Neither a borrower nor a lender be, for loan oft loses both itself and friend” - if you borrow from or lend to friends, not only do you lose the friendship, you also lose the loan. It’s tricky to get into complicated financial arrangements with friends. However, it’s not always possible to turn down a friend in need.
While you are lending, you must make sure that you are not compromising on your necessities and are offering only what’s in your capacities. Your investments, EMIs, regular expenses, and contingency fund must not get affected. Don’t be shy about falling short of your friend’s expectations. You need to be on a finically firm footing yourself before you can start lending money. But what if you’ve lent the money-your hard-earned money-and your fried has been negligent in repayment?
Here’s an escalation matrix: a step-by-step way to put the onus on your friend to return your money, beginning with some easy steps and ending with some hard steps.
Barter against your money
You can give your friend the option of keeping something valuable with you in exchange for the money he borrowed. You can ask for something you require, such as a TV, car or bike etc. Evaluate the value of the items before adjusting to the due amount. If your need for the money is especially pressing, you could ask the friend to consider selling an asset.
Use legal ways
Legal remedy should be the last option to get your money back. Get written legal documents, witnesses, call records and other proofs in place with you to present your case. It's best to make the payment by cheque. However, legal proceedings might take time and they come with additional expenses to be made to advocate. So go for it only if it’s a big amount.
The best way to go about lending a friend is to ensure he has a repayment plan at the time of lending. Always ask for post-dated cheques for repayment of your money. You can also form a registered lending agreement as a document of your transaction, with witnesses such as members of the family from both parties.
Before taking any harsh action against your friend, make sure the amount you are fighting for is worth the effort and the friendship you would lose.
Suggest alternative ways
Talk to your friend and understand what’s stopping him from the repayment. If he is in a difficult situation, give him the option of repayment in instalments. Give a monthly timeline to return the borrowed fund slowly. Help the friend form a budget or an investment plan to raise the money. You can also send gentle reminders to make payments on time in case he misses it. Forcing an immediate payment might cost you your friendship, so be empathetic in your approach.
Show your urgency
If the previous option fails, you can tell your friend that you need the money on an urgent basis. Instead of calling him, you might want to go visit him and explain why any delay in repayment could cause you trouble and land you in financial crisis. If it helps, you can carry supporting documents to help your friend understand your urgency better.
Involve common friends and family
At this point, if your friend avoids meeting you, you should inform your family and common friends about it. Show any proof of lending to your common friends, and involve them in getting yourself out of the situation. Frequent messages, calls and visits are one way of conveying the message that you are not going to give up on the money.
The writer is CEO, BankBazaar.com