A common dilemma for business owners worldwide is when to stop chasing bad debts in house and hand them over to a debt collection agency.
On the one hand it’s tempting to hold on to your debts in order to avoid upsetting customers as well as avoid paying collection fees and commissions. On the other hand the older a debt becomes the less likely you or anyone else are going to collect it.
Hence there comes a point when pursuing a debt in house costs you more than referring to a debt collection agency.
The age-old question then is, “How do I know when to refer a debt to a debt collector?”
Now while it would be nice to give you an exact length of time the reality is this depends on both an individual debtor as well as your business.
As such, the best way to determine this threshold is with a proven dynamic system. Such a system must simultaneously perform two critical tasks.
Firstly, this system must enable you to recover money from your good customers quickly and amicably so that you can accelerate your cashflows without upsetting good customers.
Secondly, and just as importantly, this system must accurately identify crooks early so that you can refer these debts while they’re still young. And as debts become more difficult to recover the older they become, by referring early you’ll massively increase your chances of full and speedy recovery.
So What Does This System Look Like?
In essence it comprises of a simple yet powerful three step process.
Step 1. Friendly Reminder: Firstly, as soon as an account falls overdue you must send them a strategically crafted Collection Reminder Letter.
Step 2. Courteous Nudge: Should your debtor fail to either settle this account or alternatively commit to a repayment program within 7 days of receiving your reminder letter then you must call them on the phone.
Step 3. Respectful Ultimatum: If they subsequently continue to dodge settlement or alternatively they default a repayment installment then you send them a Final Demand Letter.
If after this second letter the debtor still neglects the account then that’s all the evidence you need that you’re now dealing with an individual who has neither any morals nor any intention to pay. At this point there’s nothing more for you to do other than pass this debt on to a professional debt collection agency immediately!
Now if you’re old school and habitually send out a series of of reminder letters, this rapid-fire 3 step system probably seems
heretical.
However, the truth is these three communications are all any good customer needs to settle their account. Every one else poses a clear and serious risk to your business.
And if they’re a risk to your business chances are they’re also a risk to dozens of other businesses. I.e. if they’re having trouble paying you then it’s a safe bet they’ve got a swag of other creditors they aren’t paying as well.
What’s more, if these creditors are like most businesses, they lack any sort of system to quickly identify and subsequently deal with professional debtors. So while those businesses continue to sit on their backsides and drag their heels, you’re taking early and persuasive action.
And in a classic case of the squeaky wheel gets the grease, because you’re the first one to put the heat on your debtors, you’ll be the first one they’ll pay.
But more importantly, because you’re the first in line to get paid, the chances they’ll have the means to settle your debt are infinitely greater than if you were the last in line… when what little funds they may have had have all been spent paying everyone else.
Bottom Line: following this formula at the prescribed times will dramatically boost the number and speed at which you recover your debts. It all comes down to the irrefutable truth of bad debts… the longer you sit on your debts, the more money you’ll lose. Conversely, the faster you recover your debts the more money you’ll pocket.
Article Source: Angelo Ioanides – www.EzineArticles.com
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