December 27, 2019

The 4 Most Effective Methods for Debt Collection and Receivables

It takes time to chase customers down and ask them to pay. It can also tie up your cash flow, which is disruptive to your business. However, business owners have some tools to help with these situations. By learning to use them effectively, you can be paid the money that is owed by customers.

Collecting Debts Is Tricky…Always

Asking for money makes people uncomfortable. Still, customers should already know they need to pay, and you shouldn’t need to ask. They have their reasons for delaying payments, however. Because customers should know better, it’s awkward to be put into the situation of having to ask for payments that your business is owed. In some ways, that gives the customer an edge in the process. You don’t know their reasons or motivation for not paying, which means you may have to start fishing to learn more. Customers aren't always forthcoming with the information, either. You’ll be lucky if they even answer the phone when you call. Keep reading to find out how you can ensure that you're paid on time.

4 Tips For Seamless Debt Collection

Taking the right approach with debt collection can save you headaches later on, and increases your chances of getting customers to pay. The methods in this article are designed to help. These methods can help protect you, too. There are debt collection rules, and not following them can give your business a bad reputation or put your business into legal hot water. When you follow the proper steps, though, you’ll set the stage for your customers to understand why they need to pay, and they’ll see you as working with them, which goes a long way.

1. The Most Important Thing: Keep Calm

You may remember an old friend who borrowed something valuable from you and never returned it. That person is probably not a friend anymore. You may have even seen them since, and you wanted to yell at them to give you back what they owe. This is a natural reaction but isn't likely to produce the desired results. You don’t know your customers personally, which means it’s more likely you’ll be confrontational with them when asking for money. However, the best approach is to stay calm. Customer service is all about creating and maintaining good relationships with your customers. Confrontation will likely make customers feel defensive and cause them to ignore future correspondence with you.

2. Realize Your Rights As A Collector of Debt

Businesses have rights regarding collecting debts. By staying within those rights, you’ll have a better chance of collecting and not having the situation go against you via debt collection laws. For instance, did you know there is a debt collection statute of limitations? While you can still attempt to collect after this period, you won't be granted a court order for that purpose. Many companies will consider debts past this period as uncollectible. If you're pursuing debts on your own, consider reviewing the Fair Debt Collection Practices Act. This is available via the website of the Federal Trade Commission. The document specifies actions you are and are not allowed to take, including who you can talk to and when.

3. Hire A Debt Collector or Debt Collection Agency

The decision to use a debt collector for money owed shouldn't be taken lightly. It can be seen as an aggressive stance by your customers. They won't likely look favorably upon your business after you choose this option. Sometimes, choosing this option can’t be avoided, however. Customers who don’t respond after several attempts are sending signals that they don’t intend to pay. Due to this, it may be time to step up your efforts. The biggest concern you should have when choosing a debt collector is whether they'll abide by collection laws. This includes federal laws and the laws in the state affected by transactions.  Debt collectors aren't acting in the best interests of your business, which means they could get aggressive. They are going to use methods they feel have the most chance of successful collections.

4. Paperwork, Paperwork, Paperwork (Documentation Is King)

If your case against a customer is extreme and you end up in court, having proper documentation will work in your favor. Be sure to document every correspondence that you have with the customer. If you can record phone conversations, this can help. However, understand debt collection laws regarding this practice, as you may need to obtain permission from the customer. Your customer is likely to monitor the situation with you and keep records as well. If the case ends up in court, and you're found to be harassing the customer with daily calls to their phone number and emails, the court may not look favorably on this situation.  Also, remember that you aren't required to continue providing services to customers that have failed to pay you for completed work. It may be a good idea to contact the customers in writing to tell them that you're terminating the service due to lack of payment. You can also write instructions on how to reinstate the service after payment is made.

When To Hit The Panic Button

When you've tried everything within your rights to collect the debts, it may be time to hit the panic button. This can include taking legal action against the customer. For instance, you could pay a lawyer to send a strongly-worded letter. When customers see the letterhead from the lawyer, they’ll see that you have upped your game. This could turn the situation around. If the amount owed is small enough for small claims court, try that first. The advantage is you won’t need a lawyer. For amounts in excess of small claims court, though, you may have to initiate a civil lawsuit, which means you’ll probably need to work with an attorney. At Fora Financial, we are building up a library of useful tips, just like the ones you are reading now. Be sure to join our newsletter to keep up-to-date with the latest tips. [cta-newsletter]