Do you have people or companies owing your business money and have refused to pay? If YES, here are 11 smart tips on how to collect business debts successfully. Debt is one word business owners hate to hear, but sadly, debt is a business reality. Pursuing debtors is something most business owners would want to avoid at all cost because it is a frustrating process. You can easily get dubbed as greedy, impatient, remorseless etc. all because you are asking to be paid.
But you cannot decide to forgo your debts because you want to be peaceful with all your clients. If your business is starved of cash, it would suffer and you would bear the consequences. The biggest challenge most small business owner’s face is how to collect on their debts. Fortunately, with a little preparation, you can minimize late payments and develop a business radar that lets you know when an account is headed for collection.
By communicating effectively and working with financially troubled clients as they make their way through a rough patch, you may end up with devoted customers for life. Whatever effort you choose to make in collecting your business debts, know that you have to do it as soon as you suspect the customer of default. This is because the creditor who protests the loudest is likely to be paid first. Send bills promptly and re-bill monthly. There’s no need to wait for the end of the month. Send past due notices promptly once an account is overdue and follow up with calls.
If you are still at loss of how to collect on your debts without seeming offensive, try and follow these procedures.
11 Smart Tips on How to Collect Business Debt Successfully
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Some business owners hesitate to act because they worry about upsetting customers. Yes, your customer may be upset, but you still need to collect your money. If a customer is delinquent, contact them immediately and consider placing a hold on their account.
Allowing a past due account to continue accruing debt without giving notice will decrease the likelihood of successful collections. Send out a past due notice that includes the total amount owed, the number of days past due, the original due date and any late fees or interest owed.
2. Deal with your emotions
It is really annoying to find out that a client you provided service to, or who you sold a product to is trying to scheme you out of your payment; or is delaying it for too long. But for the sake of the client and your future business with him or her, it is imperative that you stay calm. The angrier you get, the less likely that you’ll collect on the full debt. The client will feel your wrath, may take it personally and may decide not to even pay you anymore for talking down on them.
Again, if you are angry and get all flustered, your actions maybe considered harassing, you may wind up losing a customer as well as facing a legal challenge. If you call your debtors, be sure not to leave more than one message per day, and never threaten or speak ill of a debtor.
Treat each call as if it was your first call of a very good day, and put a smile on your face. If you were irritated on the previous call, take a few minutes to calm yourself and start afresh. The debtor will respond to your tone. Your upbeat mood will be contagious and you are likely to get a more positive response from the debtor.
3. Go straight to the point
When you call a debtor, it is pertinent that you go straight to the reason of your call. You should make it in such a way that the person you are calling does not take the phone call personally. Do not imply that failing to make a payment is the same as being a personal failure.
Be sure to stay calm during the conversation, but always be clear that there is a debt that needs to be paid. Again, while you may try to calm things down, you should make sure not to become too friendly with the person or he or she may not take you seriously.
4. Get some knowledge
Though you may not be a professional debt collector, but you are required to have peripheral knowledge of what you are doing. If not, you will be blindly fumbling your way through the process of collecting payments. Doing some research about debt collection would enable you understand the actions that you are allowed to take, and the ones that would land you in trouble. It would also help you to become more confident in your interactions with customers.
For example, did you know that you can legally search for someone’s social security number if that individual is evading your debt collection efforts? While there’s no free online lookup service, you can go through the legal steps to find someone’s social security number so that you can move things along.
5. Keep your records
When it comes to debt collection, it is imperative that you keep every record of your transaction with the customer. This is very important because if the case is somehow taken to court, you would need those records to prove your case.
Every time you talk to a client on the phone, record the phone call and take notes. Certify and copy every letter you send in the mail. Save email correspondence. Log visits you make to the client’s office or home. All of this information could prove helpful.
6. Don’t cross the line between checking and pestering
While persistence plays an important role in collecting on a debt, there’s a fine line between checking in and pestering. Know where the boundaries lie and avoid crossing them. You should know that debtors these days are aware of their rights, and they would not hesitate to sue you to court even with your debt still hanging on their necks.
7. Send a lawyer’s letter
When you have tried all else, then maybe it is time to go legal. For a fee, your lawyer will draft up a letter outlining your debtor’s legal obligations and the repercussions of not paying the debt within a certain time frame. Often, simply receiving a letter on a lawyer’s letterhead will be enough to convince a debtor to move your debt to their top priority. This can be a good way to shake up the client, as it is cheaper than engaging a lawyer for legal action.
8. Be prepared to settle for less
Depending on how far you have gone with a debtor, at a point, you should be ready to negotiate. By negotiating, I mean accepting less than what you are being owed. For instance, if a client owes you $15,000 and it is already 120 days past due. You’ve been trying to collect on this debt for months and feel pretty sure you are never going to see the money. Before simply writing the debt off, it’s always a good idea to offer a settlement for less than you are owed.
While the delinquent payment is stressful to you, know that it is also stressful to your client and it is probably keeping them up at night. If you come to them and say you are willing to take $8,000, they may jump at the chance to get it off their books. In cases like this, you never know until you ask, and it is better to take what you can than lose out on everything.
This is an often used strategy on clients and customers that have no real hope of paying off the debt they owe. This settlement should be made official in a legal document that shows a payment of less than is due that satisfies the entire debt.
9. Get a collection agency involved
When all else is not working and time is running out, it is wise to bring it to the notice of a collection agency. This move is very important if you have other debts that are almost going redundant on you and there is little or no chance of making a collection.
Registered debt collection agencies understand the intricacies of the law and you can avoid putting yourself in a compromising position by working with them. Not only will this save you time and possibly allow for better results, but it could keep you out of legal trouble. These agencies often charge up to 50 percent of what they collect, but getting some money is often better than getting nothing.
10. Go to a small claims court
If you do not want to go through a collection agency, you have the option of filing a lawsuit to get the money you are being owed. Depending upon your state, you may be able to file a claim in small claims court to recover the money owed to your business. Small claims court is a great arena for small businesses, as these courts are designed to eliminate the high costs of attorneys and other court fees.
In fact, small claims courts are such a popular tool for businesses to use to collect debts and it has been said that 60% of all filings in small claims courts are by small businesses. States have varying thresholds for what amounts can be disputed in a small claims court. For instance, in Virginia a claim is not required to exceed $5,000, while in California a claim may not exceed $10,000.
11. File a lawsuit
This may have to be your last resort. If a small claims court is not an option for you, and the amount of money is too great to hand over 50% of it to a collection agency, you may have to file a lawsuit in order to recover the debt. There are higher costs associated with this method, however, such as fees for attorneys as well as court costs.