No matter what you do to try and weed out potential deadbeat customers, sooner or later one or more accounts will become past due. When you find yourself with a past due account on your hands, the worst thing you can do is ignore the problem. The more time that passes between the payment due date and the time that the customer is contacted, the less likely you are to receive the full payment. After 6 months, you statistically collect only 50% of the amount due and after a year that amount drops to only 25% of the original debt. If you’re serious about making a profit, there are three ways to handle collection on past debt; in house efforts, hiring a collection agency, or taking legal action.
Collecting the debt yourself: If the debt is relatively fresh or small, you will most likely start by trying to collect the debt yourself before hiring a collection agency or a lawyer. The most effective way to start the process of collecting an outstanding debt is by calling the debtor. Be firm, yet polite when you call. Make sure to keep records of the time, date, and resolution of the phone call. You’ll want this information later should you decide to hire a collection agency or a lawyer.
Many past due customers can talk a great talk on the phone, but then never deliver. If you get the “I have the check right here and will send it in the mail” line from a business customer more than once, tell them you’ll send a courier service or someone from your office over to pick it up. If the business is local, try making an appointment with their finance manager to talk face to face.
Another good way to motivate late accounts to make a payment is with a 10 day demand letter. Some debt collection agencies offer a free 10 day demand letter service that includes postage and mailing of a demand letter sent on official debt collection agency letterhead. Many times, this is enough to get your customer to part with their payment.
Hire a Collection Agency: Many small businesses do not initially think of hiring a debt collection agency to collect on deadbeat accounts, but of the outsourced solutions, a debt collection agency is usually the most cost effective and gets the best results. When you consider the in-house time spent trying to keep on top of delinquent customers, a debt collection agency is often more cost effective than trying to handle it with your own staff.
With a debt collection agency, you won’t pay a dime until they collect the debt, meaning that the debt collection agency is highly motivated to find a way to get the customer to pay. Because they don’t get paid unless you do, a debt collection agency tends to work fast, They tend to “work at odd hours”, and use all of it’s professional resources to locate missing debtors.
Today’s collection agencies don’t use scare tactics or bully customers. That type of behavior is outdated and crosses the lines of legality. Besides, not all customers who are behind on payments are deadbeats. It’s never wise in business to make enemies and gain a reputation as a brute force knee breaker for any customer who has a tough month. When you choose a collection agency, make sure one of its goals is to maintain extreme professionalism.
Taking legal action: Another option to collecting a past due account is to take legal action whether by taking the debtor to small claims court or by hiring a lawyer to pursue the debtor. This is by far the most expensive of your options.
Mallory Megan works for a collections agency that works with a debt collection lawyer. She also writes stories on business, finance, consumer spending and collections agencies. Don’t reprint this exact article. Instead, reprint a free unique content version of this same article.
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