7 Tips on Collecting Receivables For Your Small Business
The first hard collection is one of the most difficult moments in the life of a new small business owner. Getting your creditors and clients to pay up can often be daunting. This is particularly true if you are inexperienced at collecting receivables or worried about losing clients. The following tips will help you to get your debtors to pay up fast with a minimum of fuss.
Proceed From Simplest to Hardest
When you’re collecting receivables, start with a simple phone call. Starting simple will make the resolution easier for you and your client. Before you start sending off letters or becoming frustrated, make a phone call or send an email. Often times, the reason a bill hasn’t been paid is simple forgetfulness, not a desire to dodge paying what’s owed.
Put Your Best Foot Forward
Being your best self when you collect is always a good policy. Be kind, and leave the rougher tactics to the collection agencies. Talk to your clients with the sincere attitude of wanting to get the matter resolved. Never resort to threats and intimidation; it’s unprofessional and might even be illegal.
Keep A Paper Trail
If, in the worst-case scenario, a client is ducking you, keep a paper trail. Send all communication through the United States Post Office, certified mail, return receipt requested. This prevents your debtors from claiming that they did not receive your bill. You don’t need to do this for every invoice, but start doing it when you send off payment reminders.
A Word About Payment Reminders
Payment reminders work as follows: Send the first one 30 days after the original invoice. Then send another in another 30 days reminding the person of both the invoice and the past-due notice. Finally, send a third payment reminder in another 30 days (90 days after the first invoice). The final payment should contain language indicating that you plan to take legal action or turn the matter over to a collection agency if the invoice is not settled.
Contacting A Collection Agency
Unless the debt owed is very large, a collection agency isn’t the best bet for small business. These agencies are generally very expensive and the results they yield are often less than impressive. It’s a far better bet to take your grievance to small claims court. If the person doesn’t show up, you automatically win a judgment. Further, you can add things list reasonable costs associated with collecting to the debt to your bill. This allows you to recoup the cost of sending out notices and running to the post office.
The Fair Debt Collection Practices Act
The Fair Debt Collection Practices Act does not apply to small businesses directly attempting to collect on a debt. Rather, the FDCPA applies to third-party collection agencies collecting debt on your behalf. Still, learning the provisions of the law allows you to stand on both good legal and ethical ground. You should also check with the state attorney general to find out about relevant collection practices laws in your state. Many times, when you violate these laws the tables are turned and you end up owning your debtors money, rather than the other way around.
Collections don’t have to be a painful and stressful process. With a little attention to the little things, you can have your debtors paying up with a minimum of problems on both ends.
Photo courtesy of toastforbrekkie via Flickr