Debt collections can cost your business resources that, over time, can add up to more than the initial amount owed. However, some steps can be taken to help improve your collection efforts.
Examine Your Payment Policy
Agreeing to a deal verbally and with a friendly handshake makes the agreement challenging to enforce. Instead, utilize a signed contract for any product or service which will be paid for at a later date. Your payment policy should include the following:
- The name of the responsible business or individual.
- Exact due date or a timeline for payment.
- Acceptable forms of payment.
- Fees or interest for delinquent payments.
Use Accurate Accounting
Keeping accurate customer accounts will enable you to easily identify those that are delinquent. Provide each customer with an itemized invoice that includes a payment due date and send out timely reminders of where their account stands.
Don’t hesitate to act because you’re afraid to upset a delinquent customer. Contact them immediately and consider putting their account on hold. Allowing past due accounts to continue accruing debt without notifying customers decreases the likelihood of successful collections.
Some customers simply do not have sufficient funds to pay you in full, so try offering feasible installment payments. Document any agreement in writing and have your customer sign a copy agreeing to the terms.
Keep Good Records
Your steps to improve collections should be carefully documented. Records should include letters, emails, and the dates and times of meetings or phone calls. This documentation, together with your accounting records, will serve as primary evidence should you end up in court.
Stay Within the Law
It’s illegal to harass, threaten, or intimidate customers who are not making payments. Violating state or federal regulations could result in legal action against you. Consider having an attorney review the text of your collection letters. And, remember that a customer who is currently behind may make good on their obligation and turn out to be reliable and valued.
Take Legal Action
If all else fails, there is small claims court. However, to succeed, you need to be well prepared. Check your state requirements for what amounts can be disputed, as thresholds vary by state.