Only few things could crumble your business faster than unpaid debts owed by customers. Although being paid upfront for your products or services is the best, this is not always possible. Sometimes, allowing customers to buy and pay later or pay in installments can be inevitable, especially when the competition is granting that privilege as a selling point.
However, customers tend to abuse the privilege, leaving your business at the receiving end. Yet, you have to approach the situation carefully, so you don’t lose your best customers in your bid to recover business debts from them.
So, for many small business owners, debt collection is an evil necessity—something you wish you never did, but just have to do to keep your business afloat and thriving. How can you recover your business debts from defaulting customers without generating hard feelings or losing too much sweat in the process? The following ten tips will help.
10 Fail-Proof Business Debt Recovery Strategies and Tips
1. Give enough time
It is best to allow some time for defaulting customers to pay their debts before taking any action. Although there is no standard duration, 30 days is good enough. Any customer who receives a reminder from you only after 30 days of owing the debt is unlikely to think you’re being too aggressive or impatient. In fact, most customers would feel that they’ve delayed the payment for too long, and this feeling alone can prompt them to pay their debts immediately.
2. Maintain communication
Maintaining communication—not necessarily related to the debt, though—with defaulting customers is one of the smartest ways to keep the debt on their minds. Once communication stops between your business and the defaulter, the likelihood that your business will receive even some of its money is much less.
3. Send reminders
After waiting for 30 days for defaulting customers to pay up their debt, sending them a reminder is the first action you are recommended to take. This could be via telephone, email, text message, or fax, depending on which medium you know the customer will most likely respond to.
Sometimes, customers forget about their debts as soon as they leave the point of the transaction. Of course, it can be understandable since we always have many things to think about and attend to. For such customers, a simple message reminding them of their debt will most likely get them to pay back immediately.
4. Explain the consequences of not paying back on time
Sometimes, we don’t realize the gravity of our actions until we are reminded of their negative consequences. This explains why you should remind defaulting customers about how their debt is slowing down your business and may ultimately cause its downfall if not paid on time. Preferably, a message like this should come after you’ve sent a plain reminder and haven’t gotten any response from the debtor.
5. Offer incentives
This might sound odd, but it works. You can get your debtors rushing to pay up by simply offering them incentives for paying up. This is particularly effective when you have too many customers indebted to your business. A good example of this strategy in action is to offer attractive bonuses or run a discount offer exclusively for defaulting customers. Of course, paying up their outstanding debts to your company would be their entry tickets.
Most of your defaulting customers have good hearts. They never intended to hold on to your money for long. But many of them defaulted due to unforeseen circumstances, such as credit card debts, loss of a loved one, business crisis, and so on. No doubt, these problems will make it difficult for anyone to pay up their outstanding debts.
But you can still get back your money from defaulting customers who are facing difficulties by renegotiating their debt. You can either relieve a fraction of their debt or arrange a friendly payback schedule with them.
7. Trace the debtors
Due to many reasons, such as relocations and loss of communication devices, you might be unable to reach a defaulting customer through their phone number or email. Or they might just be unresponsive to your approaches. In either case, consider tracing such defaulters to their home or office address.
8. Turn it over to a collection agency
If your defaulting customers are proving too difficult, handing them over to a debt collection agency might be your next move. However, note that debt collection agencies will keep 10-50% of anything collected on your behalf. More or less, these agencies do what you could do on your own, except that they will report the debt to the credit bureau and are willing to risk a more threatening tone with the debtor if necessary. The truth is, most debtors fear debt collection agencies, and they pay on time to avoid their debts being sent to the credit bureau.
9. Take the debtor to a small claims court
If the balance owed to you by the debtor is within the limitations set by the court, small claims court will cost less than $100 to pursue and you can represent yourself. So, you don’t have to hire an attorney. But you will need to have enough paper evidence to validate the debt before the judge.
10. Hire a collections attorney
Another option you have is to hire a collections attorney. As with debt collection agencies, collections attorneys will take a percentage of what they collect on your behalf. However, some of them charge no more than their hourly rate.