Staying in business or in a company especially those that offer credit to clients on purchases a time is fairly challenging and critical particularly when it comes to debts and credit issues.
One of the biggest challenges so many businesses encounter is trying to find back money that is due to them. The current recession combined with a lot of people being in the place where they are not able to afford to pay their bills has left businesses rooting deep to attempt to recoup the money that is due to them.
Providing credit to a client, whether an individual or business, comes with a fair level of risk. Smaller companies are compelled to take steps when it comes to providing credit, to ensure that they obtain the project or sale. This will render them in serious financial problems if their customers don’t pay their bills on time.
This credit line may be a regular invoice offering the individual or company thirty day period to pay. For all those thirty days, the business has provided a service or products and has to wait for payment. Should payment not arrive in a timely way, the business is left high and dry.
Do you have customers who never pay on time? Try the following seven tips for getting back the money owed you by the customers.
Be psychologically prepared.
It’s important to be committed to get paid because late-paying customers will have all sorts of excuses. You need to be pleasant but professional, and stay stable. If you can’t consider the collection process using this mindset, clients are going to walk around you. If you’re not a good negotiator, assign collections to someone in your company who is.
Follow up.
Too many business owners allow late-paying customers to slide, whether because they don’t want to confront or offend or since they’re much occupied to track receivables. E.g., Use your accounting software to review your receivables at least once a week.
Begin by sending a reminder notice.
Letters are a polite way to remind customers of paybacks they may have overlooked. Create a typical form letter you can utilize in each situation; because it’s a form letter, customers are not likely to take it personally. Be sure to conclude the letter by asking the customer to call you to talk about payment; this gives them an out if there’s an issue on their end.
Next, make a telephone call.
If several days have gone by and you haven’t heard from your customer or received payment, it’s time to get on the phone. Phone calls are harder to ignore than letters, and in many cases, speaking to you can inspire a client to spill the beans about what’s preventing them from paying.
Do not scare the client or get upset.
At this point, your ultimate goal is to figure out what the issue is and how you can likely get paid. Evaluate how valuable the client is to you, how likely they are to recuperate from the present problems and develop into a paying client once again, and how much of the money owed you can reasonably wish to recover.
Ideally, you want to get all your money back. Providing the client an installment plan is often the best choice for attaining this. Based on your initial contract with the client, you may also manage to charge interest or late fees, but if this is going to make it hard for the customer to pay you at all, it might be best to cost them the original amount.
Take legal steps.
If you try the initial five steps and your client still doesn’t budge, then it’s time to take on legal action. Have your lawyer write a demand letter a certified written letter that threatens the client with legal action if the debt isn’t paid. Customers who aren’t scared by letters and phone calls from a business usually feel endangered enough by a demand letter to pay up.
Think about taking your client to a court or hiring a collection agency.
Your attorney can also counsel you whether doing so could be worth your while, how likely you are to get paid and what his or her fee would likely be. If you don’t want to get involved in a court case, you can hire a collection agency. Collection agencies typically take a percentage of the money they recover for you; sometimes, they’ll buy your debts outright and handle collecting the money themselves. In either case, you’re likely to get only a fraction of the overall amount. Consider the possible outcome including the customer’s ill will against the collection agency or attorney’s fees before you select either of these options.
No matter what happens with a particular late payment case, utilize it as a learning experience and build safeguards into your credit and invoicing policies going forward to prevent late payments in the future.
Know what you cannot do. If you are collecting your debts, certain practices may be illegal in your state. In all likelihood, you will not be subject to that law, but you will still need to comply with the regulations of your country. While each state’s laws will differ, you should generally stay away from the following tactics:
- Calling at unreasonable hours;
- Adding additional fees;
- Purposely delaying collection to add more fees;
- Telling the debtor’s employer about the debt;
- Lying about the debt owed;
- Making false threats to the debtor.
Document Everything
Few things are as important as keeping records in a small business debt collection situation. Should the debt ever lead to a legal battle in court, your ability to point to documentation will be beneficial.
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. Long visits you make to the client’s office or home. All of this information could prove helpful to you.
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