Small to mid sized business will almost always face the question, how do I deal with customer debt?
During this last recession, the issue of past due debt has been on the table, perhaps more than at any time in history
Here’s Collectivty LLC’s suggestion:
1. Divide up your past due debt into 3 categories.
- Collectible, but a little past due
- Collectible, but requires effort
- Probably not collectible.
Your first step is to stop draining life out of your business. The last category, Probably not Collectible, ditch it. Write it off, give it to a debt collection agency like Collectivity, and move on. Spending huge effort tyring to collect on a debt not only draws resources away from your core business, it might also lead you down a very difficult path, where the debtor often has more rights than the creditor. It sounds backwards, but truly, a misstep in the collection process can lead to you actually owing money in fines and penalties for improperly collecting a debt. It’s not worth the focus, write it off, hand it over.
For the first group, debt that is just a little past due, these are the debts that require immediate attention. These are the most collectible. The further away you are in time from when a debt was incurred, the less likely it is to collect. The epole that are only a little past due, can usually be nudged back on track with a simple, personal phone call. If anything that will help you determine if they will fall incategory 2 or 3, and allow you to move on quickly.
For anything more than an invoice, and a phone call, be sure to read up on the Fair Devbt Collections Act. This is the main body of rules governing the collection of debt. I mention many times that a misstep in the collections process can end you up in court with the people you owe money to, sueing YOU for unfair debt collections. Thousand dollar fines are not unusal.
Read more about the Fair Debt Collection Act here, advance with knowledge that will keep you out of trouble collecting your past due debts.
For the second group of people that owe you money, some suggestions we might put forward is to work out a payment plan, and understand that these folks are probably hurting the way you are. Be reasonable and understanding, have empathy, but be firm. Most importantly get some form of commitment from them, some form of forward action acknolwedging that the debt is thiers, its legitimate, and have some forward motion on getting at least a minor payment. If the debt ever does get turned over to us for collections, any of these things will help us in getting back what you are owed.
It is very important that if you think someone is moving from collectibel, but requiring effort, to probably not collectible, you stop the bleeding. Cut them off. Make future purchases COD, or Cash On Delivery. Do not throw good money after bad. Cash Flow is the lifeblood of your business.
Some good ideas for small businesses is to have a clear policy on extending credit, including every step to go through as you go from quick payment, to slow payment, to very delinquent. Stand By Your Policy, enforce it. Check customers credit before extending credit, or at least before extending large amounts of credit. Offer an incentive to pay early to get quick pay clients quicker, and offset some of your slow pay cash flow drain. If incentive is the carrot, don’t forget the stick, and have late payment penalties. Make sure your clients are aware of your credit policy, so that they know the rewards, and cost of conforming, or not conforming to your credit policy.
Collectivity, LLC is a debt collection agency, but a new breed of collections agency. We believe that an educated client is a great client, and will be glad to work with you forming an apporpriate collecitons policy. We will also take over your mid to very past due debts, work with your customers and clients, and attempt to resolve their debts as expeditiously as possible. It is always our goal to help turn a slow pay or no pay customer not only into getting back money you are owed, but when possible back into a productive client or customer.
Collectivity, LLC. A National Debt Collection Agency, headquartered, and with large focus, in Tampa Florida.