Enforcing Nonprofit Pledges
Congratulations! Your big fundraising campaign was wildly successful! You even surpassed your goal! Kudos all around.
You’ve celebrated for a minute, but now it’s time to get back to work. A good portion of your campaign’s success was based on pledges, and you need to make sure those pledges are fulfilled. When running a campaign where pledges are accepted, you must have procedures in place to send reminders in a timely manner, accurately track all payments received, and match them to the correct donor.
In previous articles, I’ve written about the importance of written gift agreements, especially for multi-year pledges. It’s worth restating: before you start your campaign, have a standard pledge form that is ready to be signed by both the donor and the nonprofit leader. The gift agreement should be aligned with your gift acceptance policy.
A pledge agreement, signed by both the donor and the organization’s representative, is legally enforceable in the eyes of most courts. State law determines a pledge’s enforceability.
Pledges are binding because:
The great majority of donors will honor their pledges and fulfill their obligation. On the other hand, there is always a small number of donors who do not pay. What can you do after you’ve notified your donor multiple times that their pledge payment is due or long overdue?
The next step in the process may be a difficult one, but it may be time to consult your attorney and financial advisors. A statement to this effect should be in your gift acceptance policy and in your pledge agreement form, so that your organization’s intent and recourse is completely transparent to all involved.
In extreme cases, failure to collect a pledge could be considered forgiveness. Forgiving a pledge could be interpreted as a gift back to the donor which is not an appropriate use of charitable assets. The IRS could impose sanctions against the organization and possibly jeopardize the nonprofit’s tax-exempt status.
To recap, have a gift agreement form ready to be signed by the donor who pledges and by the CEO or ED of your organization. Your gift agreement form should align with your gift acceptance policy. The policy should have a statement or section that clearly states the actions your nonprofit organization will take if a pledge is not honored. You should also have procedures outlined to support this policy, such as when pledge reminders or invoices will be sent and by whom.
Pledges are a useful tool to help donors support your mission within their budget.
Michelle Crim, CFRE
Dynamic Development Strategies can help. We offer coaching and fundraising services for our nonprofit clients. We specialize in startup and smaller nonprofits because we understand your challenges. Please contact us for more information.