It is imperative to main the financial health of your business. One of the biggest loss leaders in a small business is the lack of their ability to collect outstanding debt owed them.
No matter how many policies you implement to stay clear of non-paying customers, you are likely to come across the issue of unpaid debts. Under these circumstances, the worst step is to ignore the issue. That’s because the chances of customers paying back fade away as time passes.
Some experts believe that you can collect only 50% of the total amount, six months past the due date. After a year, this amount drops to 25% of the original debt given.
Technically speaking, every business needs a stable cashflow if it aims to survive the industrial grind. This should be the building block of your venture. So once your ship starts to sail, you must set out clear regulations for all stakeholders involved. Not paying bills on time is not uncommon in any specific field. It’s a universal problem. A study conducted for the National Foundation for Credit Counseling in 2015 reported that only 71 percent of its respondents paid their bills on time.
Bear in mind that it’s not only individual customers who fail to make payments on time. Sometimes, major corporations and institutions also fall behind. Nonetheless, being a player of the competitive landscape, your responsibility is to handle collections on past debts. You can start with basic in-house efforts and switch to stern legal actions if things do not work out.
Use these techniques to collect outstanding debt in little time quickly:
1. Send a friendly payment reminder
Set a routine; maybe every Monday, give your customers a phone call or send an email alerting them about the overdue invoice.
Perhaps they forgot about it. Your valuable clients will feel embarrassed that your payment slipped through the cracks. There could be some other minor issues that occur as roadblocks, such as they might have wired money to a wrong bank account.
To lower down the chances of such problems, make sure that the payment reminder has all the vital details — for instance, account number and contact information.
2. Constant communication
It’s never a wise move to break all contacts with the clients when they are not able to pay right away. They may give you their word of making the payments later, but that’s not an excuse to keep them out of the communications loop.
As mentioned earlier, the older a debt gets, the harder it is to collect. Being confident when speaking to the customers is the ground rule of communicating with debtors. Prepare for all possible excuses they might come up with. If, for instance, they say that they did not receive the invoice, email them a copy instantly.
You must maintain calm during these communications. Keep your emotions in check, so they don’t get the best of you. Collections expert Bob Tharnish suggests that we must treat each call as if it’s our first call on a good day. When you demonstrate an upbeat mood, it will be contagious, and the debtor is likely to respond more positively.
3. Send a formal letter
Setting priorities should be the first thing you should do before you start your business. And keeping track of your debts is one of the basics. If initial efforts do not bring results, then sending a letter is the resort you have to seek when the client has been ignoring you for a long time. In these situations, debtors often do not respond, and even if they do, they tend to make meaningless excuses. Such clients arguably prove lethal to the economic health of your business.
If all your providing does not work, you should send them a formal letter. This letter should enlist all their pending payments as well as the consequences that might occur if they do not payback.
4. Hire a debt collection agency
When you reach a point where you cannot collect the payment despite exhaustive efforts, it is now the time to seek assistance from external resources. To our fortune, there are collection agencies around us who can help us to recover outstanding debt. These agencies are increasing in number as the corporate sector continues to expand. As of now, there are 41 000 debt collection agencies in the United States. The industry averages around 20 percent recovery of outstanding debt.
Collection agencies bring about the best results of all the recovery methods. They are quick and effective. Instead of utilizing in-house resources to recover debts, you can hire a reputable debt collection agency and let them handle the affair.
The fact that you do not have to pay unless they collect the debt is the biggest motivator for these agencies. They aim to beat all odds and recover payment somehow so they can receive their payments.
5. Take legal action
If you have chased a customer for a long time, but the debt remains outstanding, then you can seek assistance from the law. Your first step must be to issue a letter before action and then proceed to your legal advisors. Or you can take this matter to small claims court.
Some high court enforcement groups also represent clients. They sit during the negotiations with the enforcement providers. These agencies, with legal standing, make sure that debts return to the clients in the quickest time possible.
It is essential that you stick by the law and do not cross the lines out of impulse.
Debt collection is overwhelming. You end up feeling like a disaster as you have to push over and be harsh sometimes. Currently, there are tech innovations in the field that make this whole collection process a bit easier. There are online platforms where two parties can negotiate and pay.
To sum it up, debt collection has become easy than it was a decade ago. You must play your cards right from the beginning to ensure that it doesn’t become an overwhelming deed for the company.
About the Author
Alycia Gordan is a freelance writer who loves to read and write articles on healthcare technology, fitness, and lifestyle. She is a tech junkie and divides her time between travel and writing. You can find her on Twitter: @meetalycia