Collection Do’s and Don’ts: 5 Important Rules to Follow When Pursuing a Bad Debt
Small business relies on its cash flow to remain in business. A bad debt can be the difference between net losses and profitability. Collecting obligations can be a litigious and challenging process. Some actions can increase or decrease the chances of getting paid. Below are five do’s and don’ts for collecting debts.
- Send a Reminder
When a bill becomes overdue, send a reminder immediately that states both the amount of arrears and the fact the payment is past due. Often, customers are busy and forget a bill has to be paid.
Keep a log of all attempts to collect the debt. The information should include dates and times of phone calls and copies of other communication sent about the overdue payment. The information may be needed when contacting a debtor or if legal action is required.
- Have a Collection Plan
Have a plan in place to deal with overdue payments. If there is a problem, try to negotiate first, then take the account to collections or a commercial litigation lawyer. Be sure everyone in the organization understands the process, so that overdue debt is directed to the proper department or individual when a debtor reaches out to you.
- Determine the Reason for the Late Payment
Discover the reason the payment is late. Debtors typically fall into one of three categories
- Experiencing financial difficulty
- Habitually delay payments
- Decided not to pay
When you know whether the debtor non-payment is due to avoidance, priorities, or finances, a solution that is mutually beneficial may be possible. Debt negotiation is a process.
Listen to the debtors and offer a solution that might appeal to them. The offer may increase the chance of creating a win-win situation. Consider offering a settlement to a business that is in financial trouble instead of obtaining the full payment. There is an adage that says half a loaf is better than none.
- Do Not Use a Negative Approach
Do not harass someone who owes you money. Be straightforward, use a civil tone, and convey your desire to keep your relationship positive. It is permissible to address concerns down the line that could involve a commercial litigation lawyer.
Seek a verbal agreement that the debtor will pay the invoice and date to expect payment. Do not apologize for asking about money that the debtor owes you. That money belongs to you.
- The Last Straw
When it seems that all attempts are useless, write a demand letter. Address the account. Refer to all invoices and past communication. The message should not be a direct threat, but the language should include seeking a commercial litigation lawyer if the bill is ignored.
Conclusion
When all else fails, a commercial litigator offers strategic and creative solutions that alter bad debt recovery results. Contingency agreements are available that ensure you are not spending money without getting anything in return.
A commercial litigation lawyer offers a free consultation either in person or on the phone to assess the options available to you. The cost-effective alternative includes a summary of how to improve future collections.
