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8 Debt Collection Tips for Small Businesses

july 24, 2020 | smb debt collection
Business owner going over paperwork

Managing Debt Owed to Your Business

Cash is the lifeblood of any business, and for businesses operating on slim margins, the loss of any expected revenue or income can be disastrous. Getting paid what you’re due is vital to every company and getting paid on time is equally important. Unfortunately, many businesses run into customers who are unwilling or unable to pay their debt, and it falls to you to take steps to collect what you are owed. Debt collection for small businesses is not an ideal situation to be in, and it’s difficult to collect money from people who may be in financial distress, but there are steps you can take to ensure a successful resolution to outstanding debt.

Hopefully, you have a signed agreement with your indebted customer or borrower that outlines the conditions for  late payment. An agreement is no guarantee of payment, however, and regardless of consequence, those in  arrears are still obligated to pay what they owe. That obligation doesn’t entitle creditors to take any action they choose in pursuit of payment; instead, there are avenues that creditors can take to collect, within reason.

A good debt collector stays in compliance with the Fair Debt Collection Practices Act (FDCPA). If you're a bad debt collector, you will likely get contacted by your state attorney general. The Federal Trade Commission and Consumer Financial Protection Bureau exist to protect consumers.

Eight Debt Collection Tips

  • Don’t take it personally. Taking a past due payment as an affront is a sure way to escalate the issue beyond what’s necessary and might be misconstruing reality. It may be that the client forgot to pay, or thought that they’d already paid, and is happy to rectify the problem. By assuming the worst , you could damage a valuable relationship.
  • Get in contact early and stay in contact. The first step your business should take in the collection process is to reach out to the debtor to remind them of their obligation, and then reach out regularly. Contact can be made through phone calls, texts, or letters, but it’s important that you not go overboard in your attempts. Anything beyond a single call a day may be construed as harassment, and any messages should be professional and not veer into anything that might be considered a threat. Regardless of the legitimacy of your claims, your case to collect could be hurt if the debtor takes legal action against any perceived harassment.
  • Document everything. Every letter sent, every call made should be logged and filed with your records to provide documentation if you need to refer the matter to a collections agency or lawyer. Should you need to go to court to settle the matter, you’ll also want a record of any conversations and communications to bolster your case.
  • Work out an arrangement. It’s not necessarily the case that those who haven’t made timely payments are looking to skip out on their debt. Financial difficulties may have made immediate full payment impossible, but that doesn’t mean you’ll be left empty-handed. Businesses are of course entitled to seek the full amount, but in the interest of preserving relationships or simply getting a portion of what’s owed, you can work with the debtor on an agreement to extend the repayment period or arrange for partial payment to settle the debt—with the terms outlined in writing, of course.
  • Remain firm. While you can choose to be flexible in seeking repayment, you shouldn’t let debtors play upon your emotions to skip out on what they owe. Stay insistent upon the point of repayment and verify any claims of hardship before offering to reduce the balance or setting up a payment plan. Again, any agreements should be in writing and legal advice sought to prepare those documents.
  • Send demand letters. Everything you do in your efforts to collect on the debt should be written or memorialized in writing and saved for a later date. As part of that effort, a demand letter notifies a debtor of what they owe and the potential legal action they may be facing if they don’t pay within the term provided. Demand letters should serve to convey your seriousness about collecting upon the debt and provide a record of our attempts to collect should you need to escalate further.
  • Forward the issue to a debt collection agency. If all your attempts to collect upon the debt or reach an arrangement fail, it may be time to look to a collection agency for assistance. As professionals in the area of pursuing payment, a collection agency can help with the drafting of demand letters and has dedicated staff for the purpose of calling debtors, so much of the work and stress can be taken off of your plate. Collection agencies don’t work for free, and not every business is comfortable with an industry that has a somewhat tarnished reputation in the public’s imagination, so it falls to each business to decide if they wish to go that route.
  • Work with a lawyer. A debt collection lawyer can also help you in seeking repayment from debtors. A lawyer will take over the work of debt collection calls and letters, but also offers both the weight and experience of their legal background and the possibility of support for any further legal action for non-payment.  

Hiring a Lawyer to Help Collect Your Debt

Businesses considering legal action to collect upon a debt should be well aware that the court process can be expensive and time-consuming, particularly if you are required to be in court for the proceedings, a diversion from running your business. And, crucially, winning a judgment still leaves you with debt collection from someone who has not paid to this point.

Fortunately, winning a court case gives you more options in seeking the money owed. A judge can place a lien on the debtor’s property or order a writ of execution, which is a garnishment of the debtor’s wages towards the repayment of the debt. If the debtor is facing a bankruptcy proceeding due to multiple unpaid debts, they may have to liquidate their assets in order to pay off their lenders, including you, or devise a repayment plan that is approved and enforced by the court. Regardless, it’s a boost to have the law come down on your side in your fight with debtors.

A LegalShield Lawyer in Your Area is Here to Help You

Trying to collect on an unpaid debt is an unnecessary and unwanted distraction from your actual work, but no small business can afford to forgo money at a time when every dollar matters. LegalShield lawyers can help you generate a demand letter and walk you through the debt collection process to make it as straightforward and painless as possible.

LegalShield provides access to legal services offered by a network of provider law firms to LegalShield Members through member-based participation. Neither LegalShield nor its officers, employees or sales associates directly or indirectly provide legal services, representation or advice. See a plan contract at www.legalshield.com for specific state of residence for complete terms, coverage, amounts, and conditions. This is not intended to be legal or medical advice. Please contact a medical professional for medical advice or assistance and a lawyer for legal advice or assistance.

Speak with an Debt Collection Lawyer to Get Help Managing Your Small Business.

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