Business to business debt collection is altogether a different process as compared to the process of debt collection from an individual. There is no valid excuse that a debtor can give for not paying the money you deserve. Therefore, once a business debtor has owed you money for quite some time, there is nothing wrong in putting all your efforts to get the money. Since you will not like to do business again with a company that fails to pay your money in time, there is nothing for you to lose here. However, before you begin the business to business debt collection process, you must be clear of your sole objective i.e. getting the money paid in full. Don’t agree to settle on anything less than what is committed by your client.
Firstly, you need to understand that there is nothing wrong in threatening your client regarding legal action. A notice threatening legal action can serve as a public record regarding your efforts for recovery, and your client’s failure in making the payment. Indirectly, this will put your client as a thief and will provoke him to make the payment in order to save his business image. Remember that business to business debt collection is not an easy task, and you need to put in your wholehearted efforts to get the result or money you want. The debtor may have already given you thousands of excuses and set-aside thousands others just for you. Therefore, don’t get convinced with what the client is saying. Instead, try convincing him that you mean a fair business.
In business to business debt collection, it is very important that you approach the right person. Don’t waste your time messing around with junior employees or mediators. They don’t have the authority to sign the checks. Directly approach the person that authorized the purchase. He cannot get away by asking someone else to ignore your invoices. Call him as many times as needed, and even after the office time is over. Let him know that you are disappointed and angry. Since there is no future business, there is no need to carry business etiquette here. However, it is good to avoid going to a level that can harm your business reputation.
If even after repeated trials and all the notices you are not able to collect your debt, it will be a good idea to hire a business to business debt collection agency. They are expert in making both individual and business to business debt collection and the chances are fair that they will be able to help you get your money.
If you are a business owner who performs services or sells a product on credit, chances are at some point you will have a delinquent customer. Account receivables should be considered an asset to your business not a liability that is holding your business back. If you have customers who have stopped paying or never paid, then a debt collection agency will help your business. It is easy to put this aspect of the business off, but by doing so you risk losing hard earned income.
As a business owner, attempting to collect a past due payment can be a challenging task. You may attempt to contact the past due customer by phone, but technology allows the customer to avoid the calls easily. A business owner can send a collection letter to notify the customer of the past due payment. However, unless you have experience in creating collection letters this can be time consuming and you may not receive benefits from your efforts.
Hiring a debt collection agency can be a decision that carries several benefits. First, you can focus all of your time and efforts into obtaining new clients and growing your business. An experienced debt collection agency will create effective debt collection letters in a much more timely fashion. Secondly, a common issue with a delinquent customer is locating them. Typically the phone number originally provided is disconnected. An experienced debt collection agency will use cutting edge skip tracing technology to locate the past due customer and obtain payment. Some customers had every intention to pay, but hard times have prevented them from payment or they have simply forgotten. In many cases the customer will not only pay the debt, but will continue to do business with the company in the future.
An effective debt collection agency that will work with your small business can be a priceless asset. It will not only improve your cash flow, but will allow you to give out credit to higher risk customers than your competitors. The next time you are frustrated with late paying customers, remember the benefits of hiring a debt collection agency.
Here are some sound debt collection techniques that can be followed by businesses to mitigate the bad debt crisis:
– Hiring a debt collection agency.
– Doing it yourself.
– Sending A Pre-Collection Letter
Most businesses don’t want to “play the bad cop” with their clients, so they approach a debt collection agency, which for a nominal fee sends a notice to the defaulter asking him or her to pay up.
Remember, a notice from a debt collection agency is much more effective than the notice from your company itself. It tells the defaulting customer that you have now hired a professional help to collect the dues and, thus, it increases chances of customer paying up the debt faster. The ‘fear factor’ of credit rating damage is associated with debt collection agencies.
Hiring a Debt Collection Agency
A debt collection agency under the Fair Debt Collection Practices Act is one that recovers debt on behalf of others. It employs various methods to recover dues from errant customers:
Debt collection calls are a necessity in debt recovery. Handling the collection call in a calm and professional manner can make the difference upon which collections are made or lost.
Skip tracing is a detection method adopted to find a debtor who has absconded either intentionally or unintentionally.
Forwarding occurs when a collection agency forwards a debtor’s account to another collection agency, possibly because it does not have the authority to conduct business where it is currently located.
Flow Forwarding is a novel concept in which a collection agency contracts with a business to purchase all its bad debts on a periodical basis.
Doing It Yourself
As mentioned earlier, most businesses suffer from bad debts because of a lack of a clear debt management policy. Most organizations would minimize their debt management if they had clearly defined credit policies. Moreover, a clear understanding of the law needs to be had before a business drags its clients to court. This is the tedious bit and therefore businesses need to be very sure with their preparation.
Bad debts affect small businesses more than large businesses. Large businesses have the buffer to survive bad debts while small businesses do not. If small businesses do not get payments on time, they cannot reinvest in the business for lack of funds and have to stop operations. Many businesses have actually shut down because of their inability to recover bad debts.
Why is it difficult for small businesses to collect bad debts?
Some of the factors that make collecting debt especially difficult are described below:
Avoiding unpleasantness: Collecting debt is an unpleasant task. As the business is small, its focus is on getting more business and retaining existing customers. Despite the fact that customers are in the wrong in delaying payments, the business will not remind them of the dues too often for fear of losing further business. Customers understand the predicament of small businesses and take advantage of it.
Short of resources: Small businesses do not have the resources to recover bad debts. Collecting debt requires keeping accurate records of debt and credit transactions, sending out reminder letters regularly, calling up customers, visiting customers and regular follow up. This needs time, manpower and money. Small businesses are short of all three.
Using in-house staff to collect debt: Small businesses try to save money by recovering bad debts themselves. The business gives the responsibility of debt collection to an Accounts Receivables person. This is not very effective and rarely results in quick debt recovery.
Firstly, the Accounts personnel are already swamped with work, and cannot put in the required time and effort to collect debt. Secondly, debt collection is a delicate task that needs to be handled with finesse. Accounts personnel can in fact spoil your customer relationships by being tactless. Thirdly, in-house personnel may not be aware of the state and federal laws regulating debt collection. Violation of these laws will cost your business more by landing you in legal trouble.
How does a debt collection agency help small businesses?
Debt collection agencies can help small businesses improve their bottom line considerably. Many collection agencies deal with small business accounts, and charge accordingly. The fact that you have partnered with a debt collection agency will make customers take you more seriously.
Debt collection agencies have skilled staff trained in debt collection strategies. They are well-versed in debt collection laws and have a professional and cordial approach towards customers. The collection agencies will charge a fixed rate or a percentage of the debt they collect. They have greater incentive to recover debt faster.
Debt collection agencies collect debts through a four-phase process. The process involves sending out demand letters to the customer, contacting customer through phone, reporting customer to a credit rating bureau and filing a lawsuit in case of non-payment.
The demand letters or notices sent out by the debt collection agency give details of the debt, the amount due and a payment due date. The third and last demand letter warns the customer of being reported to a credit rating bureau if the payment is not settled by the specified due date. The warning will push most customers into settling their dues as a report to credit rating bureaus will hurt their creditworthiness.
Debt collection agencies fall cheaper in the longer run, as they recover the bad debts you would otherwise write off. Debt collection agencies will recover your debts in a professional manner, thereby enhancing your customer relationships. With a debt collection agency as your partner, you can focus on your business operations without worrying about funds.
Credit is an essential requirement in any business. Flexibility in payment is required by all businessmen to coordinate between their business operations and make and receive payments from their other business contacts. However, when the payments get delayed by too much time, it can become a problem. Many businesses see large amounts of due payments being written off as bad debt accumulate in their accounts. As these figures grow bigger, it may be better to hand over the responsibility to an expert i.e. a debt collection agency rather than trying to deal with it yourself.
Why do you need a debt collection agency?
For one thing, the truth is that if a debtor has not made the payment for a long time, there are very few chances that he/she would be looking forward to making this payment soon. Hence, without professional help it may not really be possible to get that debt back. It makes sense to give out a part of the amount as commission and get the rest of your debt back rather than losing out on the whole amount. Secondly, it requires a lot of time as well as effort to trace the debtors who are not reachable. Many businesses cannot afford to take time away from their core businesses. Moreover, even if you do trace the debtor, there is no guarantee that it might actually result in you getting back your debt. Taking legal action is a complicated process and would again require a lot of time. Legal action also involves the businesses spending money upfront with no guarantee of payment even after a judgment is entered. Also, at times you cannot afford to ruin your business relations with a company for previous payments. Giving the responsibility to a third party makes the process more formal and you do not have to interact directly with the debtor.
How can a professional debt collection agency help?
The debt collection agency is a professional expert in collection of debt on behalf of the creditor that works for you for a certain commission when they are successful in getting your claim amount. Once you hand over an account to them, you can be assured that they will make their best efforts to recover it, as their commission depends on it. You should seek a debt collection agency that works on the policy of no collection no charges payable and has a proper procedure in place to recover the amount. Debt collection agencies usually first send a letter to the debtor and follow up with some more correspondence. If there is no response, then personal communication with the debtor is undertaken, which is effective in most cases as it is not a good experience to get a call from a debt collection agency and most debtors take it seriously. Yet, if this is unsuccessful, then they can file a suit on the debtor on your behalf.
You know that cash is and always will be king. One of the biggest drains on small business cash flow is often out of control past due accounts receivable. I have seen business owners try to tackle the problem by cutting off any new credit and thus running themselves straight out of business. There is an easier way.
You can instantly begin to collect more of your past due receivables by making it a priority. Most small businesses that I come across have a haphazard method of collecting receivables in the best of scenarios. In the worst cases, their collections are non-existent.
The very first thing you should do in your business is put someone in charge of collections. Now, it can be an existing employee who takes on an extra duty or if your receivables are large enough and collection would be lucrative enough, you can even hire someone to fill a full-time position. That will be up to you and to the size and severity of your problem.
However, a funny thing happens when you put someone in charge. Someone who will be judged and evaluated at least partially on how well they perform this function. All of a sudden, collecting your past dues becomes a priority. You see, your employees take their cue from you. If you constantly complain about your past dues, but do little to alleviate the problem, they will understand that it is not a priority for you, otherwise you would take steps to improve the situation. By giving someone responsibility and holding them accountable, you have just demonstrated in no uncertain terms that collection of past dues IS a priority.
In addition, you’ll want to set specific targets and goals for improvement in the amount of collections. You’ll want to have regular meetings to discuss progress and plans for the future. In order to be taken seriously, you’ll need to have at least weekly meetings, if not more often. These need not be long, drawn out time wasters just for the sake of having a meeting, they can be short, sweet and to the point. Where were you at the last meeting, where are you now, what or who are you having particular problems with and how should we address those problems. Give them responsibility and hold them accountable.
Certainly, you will want to give your employee some training, some guidelines, scripts and letter templates, but once you have given him/her some training, you’ll see an instant improvement in your cash flow plight. What was once a low priority is now a high priority. You’ll be amazed at what these simple steps can do to improve your collections.
If you are like many small businesses, even a few late payments on your accounts receivable can seriously crimp your cash flow. It is vitally important that you take immediate and systematic steps to limit the number of past due receivables that you have at any time. The number one strategy is to have a system in place that limits the number of accounts that go past due in the first place. There are numerous tools and strategies for doing just that. However, today, we will concentrate on how to deal with the past dues once they appear.
Here are some tips that will help you to reduce your outstanding receivables:
– Address the issue immediately. Never wait more than 3 business days past the due date to contact the customer. This allows for mail delays, but is early enough to catch a situation before it becomes worse.
– When you contact customers, don’t give them an excuse to use (“Did you receive your invoice?”). Rather, ask them, “When did you send your payment?” If they tell you it hasn’t been sent, ask them if they intend to send it today. If they say “no,” ask when they expect to send it. Get a commitment from them and follow up if the commitment is not honored.
– Ask your customers why they haven’t paid your bill. Remember, if they are honest with you, you should treat them with the utmost respect. Everyone has cash flow issues from time to time and your treatment of them will be remembered long after their problems are over and they are looking to purchase products or services that you offer again. As a matter of fact, proper etiquette when collecting could not only result in you getting paid more quickly, but can also allow you to keep them as customers for life. You see, if they are indeed having problems, chances are there will be many who will not treat them very well and this will sour their relationship going forward.
– If you get an excuse, remove your emotions from the equation and address the situation logically. Get a definitive commitment on a date or time frame for when you can expect to receive payment from them. Make sure you are in agreement, so that there can be no claims of misunderstanding later. Find out how (mail, credit card, etc.) and when. Then note the conversation in your file so that you can follow up immediately if the commitment is not honored.
– If they give you a good reason (“My product was defective”), try to remedy the situation, if it is within your control. For example, if you find that the product was indeed defective, make certain that a new, defect free product is delivered immediately.
– If your customer is a larger company, understand that they will generally pay their invoices on a set schedule. You will need to know when your invoices need to be received by them in order to be included in their weekly, bi-weekly, or monthly payment cycle. If you find yourself with a past due from one of these companies, be sure to call or contact them several days prior to that time to make certain that they have all the documentation they need to include your invoice with their payments.
These are just some of the many proven steps you can take to collect your receivables once they are past due. To limit future past dues, you will need to revisit your entire process. To compete in business today, you will almost certainly have to have some level of credit for your customers. The key is to limit it to those who will pay you! If your process needs an overhaul, it is important to tackle that issue immediately. While sales are important, it is still cash that is king!
One of the biggest drains on the cash flow of small businesses is the slow collection of accounts receivable. In cases where accounts receivable are out of control, you can bet that cash flow is out of control as well. I don’t know about you, but the folks I have to pay are not very concerned with whether or not I am getting paid in a timely manner. They want their money. Why is it then that we have such a difficult time holding our customers to the same standard. Why on earth should we feel guilty calling our customers to ask for OUR money? I don’t know, but many of us do.
The easiest thing to do is to put off contacting the customer for another day or two or worse, send a letter that either gets ignored or thrown in the trash. Most businesses take the easy way out. A short impersonal letter asking for past due payment helps you to feel as though you are doing something about your problem and also helps you avoid the personal conversation with your customer. Unfortunately, letters while better than nothing, do not get nearly the results that are obtained through personal contact.
The best and easiest way to make sure that all of your past due customers are contacted and contacted regularly and at scheduled intervals is to set up a system for contact. Your system should include the timing and content of each of your contacts. For instance, set up your contact to be x days after the due date. Your second contact should be x+7 days later, etc. The second and third contacts are just as important as the first. It shows that you are on top of the situation and are not going to go away.
You should have a script that you use in these situations. This forces you to make the contact. Each day you will know exactly who is late and what call or contact they are due for. This takes away the guesswork and the procrastination.
There is a time for letters and written communication. That time comes when your personal contact has not been rewarded with payment. It is now that, unfortunately, you must begin to build a file that you can use should collection or legal action become necessary. As with the personal contacts, you should have standard letters for each situation. Letters for x days past due, letters for missing a promised payment, etc.
Yes, there is a lot involved in setting up an accounts receivable collection system. But what is it worth to you? How much of YOUR cash is currently out of your reach because of past dues? Once you have the system set up, it will save you hours and hours of time and thousands of dollars in bad debts. How great would it be if you could look at all of your past dues and know exactly what to do and exactly when to do it? What if you already knew exactly what you were going to say or write for each? How much would it be worth to cut your past dues in half? How about cutting them by 75% or more?
That’s the power of a system. Specifically that’s the power of having an accounts receivable collection system. No more guesswork, no more inconsistencies and lots more cash in your bank account.
Customer bills that are unpaid after the terms that were set are considered past due accounts. Many business owners and managers have a billing processes, but no process for collecting on past due accounts.
One of the biggest dilemmas small business owners face when managing a business in collecting on past-due accounts. Why, do we have a fear of contacting clients or customers who owe us money? Most business owners avoid calling a client of customer on a past-due account, they prefer to send a letter, which do not bring results. Here are a few step to collecting on past due accounts.
1. Once an invoice has been sent to the client or customer, and payment has not been made with in the terms. Give the client or customer a professional courtesy call to confirm that they received the invoice.
2. After 1 week if payment has not been paid, place another professional courtesy call, advising that the payment still has not been received, be sure to ask when payment will be send, the check number and amount of check.
3. Send out a demand letter immediately after call.
4. Contact a reputable collection agency who specializes in collecting on business accounts for past due account over 90 days.
Constant communication trains customers to pay bills promptly and establishes an efficient, professional relationship between you and them.
Be sure to view your accounts receivable aging reports periodically to avoid delaying the contact of past due accounts.
Bonus Tip: Be consistent, don’t hesitate, the longer you wait to contact, the harder it would be to collect.
If your financial problems have grown from too much debt or your inability to repay your debts, a credit counseling agency may suggest that you sign up for a debt management plan (DMP). Only enroll in one of these plans after a certified credit counselor has thoroughly reviewed your financial situation, offered you detailed advice on money management, and determined that this is the best debt consolidation tactic. Only make payments into your DMP when your creditors have accepted you into the program.
When in a DMP, you work towards debt consolidation by depositing money every month with the credit counseling organization, which uses your deposits to pay your unsecured debts. Your credit counselor should estimate how long it will take to complete your DMP and ask if you are permitted to apply for or use additional credit while you are enrolled in the DMP. It is important to know that even with regular, timely payments; your DMP could take more than four years to complete.
7. Debt Consolidation
Acquiring a second mortgage or a home equity line of credit may be attractive debt consolidation options as well. These loans can help lower your cost of credit and might result in unique tax advantages. However, you risk losing your home because you are putting your home up as collateral. So it is very important to not make late payments or fail to make them at all. In addition, not only do you have to pay interest on these loans, but you might have to pay “points.” One point is equivalent to one percent of your borrowed amount, and these fees add up over time.
8. Bankruptcy
Personal bankruptcy should be a last resort in debt management and debt consolidation. If and only if you have exhausted all of your other options, you can declare bankruptcy. This gives you a court order saying you are no longer responsible for paying off certain debts. On the other hand, bankruptcy information remains on your credit report for 10 years. This can be a major roadblock in obtaining credit, purchasing a home, securing life insurance, or even getting a job.
Debt consolidation may seem like an overwhelming task, but you have to be proactive if you want to get your finances in order. No matter how bad your financial situation is remember there is hope. There are a number of realistic ways to improve it, or at least to make sure it does not get any worse and begin your debt consolidation. Use this information as a guideline for getting back on the right financial path and take your first step towards debt consolidation today.
