A debtor finance company understands that debt collection is essential for every business, but it’s much more crucial for small businesses. A corporation or large business can thrive regardless of the challenges of economic circles, as they got more financing alternatives. On the other hand, a small business might not possess as numerous options and a single bad debt can cause the company to go into bankruptcy.
This article is designed to help you, as a small business owner, with important tips on how to go about your debt collection. So, please read on.
When is a Debt Considered Seriously Overdue?
After 3 months, client accounts get into delinquent status. Business proprietors ought to know that the possibilities of being paid the debt completely significantly following those initial 3 months have transpired.
In accordance with the CCAA, the possibility of recovering cash from an account 90 or more days delayed drops to 73%. As more time passes by the chances of cashing in goes to 57% after 6 months and to just 29% a year later.
Related article: Startups: Staying Financially Stable in the First Year and How to do It
Emphatically, small business owners can significantly increase their chances of collecting on an overdue account by incorporating the following tips and strategies:
Record customer information accurately and clearly.
Keeping a clear, precise, and updated credit files and payment histories on each of your customers is a must. To help in the process, business owners should use a good accounting software program, like QuickBooks. There’re also several good free open source options that can be used, namely:
-Microsoft-Office-Accounting-Express
-TurboCash
-GnuCash.
Develop A Thorough And Clear Credit Terms And Conditions.
Operating a small business, fortunately, requires constant cash flow. Accordingly, at the moment past due user accounts, receivables begin accumulating, it’s never something which can be simply brushed aside. Those overdue charges can seriously jeopardize a business’ path to working capital & eventually put the whole business in jeopardy.
Clearly, state the terms and conditions customers must abide by in order to receive credit from your company. Stated within this written record should be an outline of the procedures which will be applied at the time accounts are severely overdue. Ensure a copy of the policy is offered to your clients the time they make a credit account & is resent in case of a delinquent bill.
It’s remarkably vital that small businesses possess an action strategy for their debt collection. Minus a written out strategy, you’re betting with your business and its capacity to stay out of bankruptcy. Numerous businesses could have foregone bankruptcy during the financial crisis with a proper plan of action.
Incorporate Assertive Collection Plan.
By increasing your collection attempts from the start with a set of assertive and deliberate strategies, you will have less wiggle space for your clients and finally protect your small business’ bottom line. Such strategies typically comprise of a blend of the following:
- Working a credit check prior extending credit
- Needing a down payment
- Cutting down the pay period
- Asking for a post-dated check.
Assertive Past due to collection tactics should include:
- Quick follow-up on an account as soon as it’s overdue
- Directing a set of collection letters varying in austerity from a simple warning which an account is late to a terminal demand for payment prior the issue is switched over to a 3rd party
- Closing or freezing the customer’s account
- Attempting a series of collection phone calls
- Requesting a face-to-face meeting
- Attempting negotiation when there is a valid reason for nonpayment
The bottom line is as long as the lines of communication are open, there is always some chance that you will reach an agreement and receive some or all of the money owed to you.
Conduct An Annual Review And Evaluation of the Debt Collection Process.
Business owners should make sure that their collection process is in line with the current economic and/or market conditions. When the economy is in a downturn, businesses should be doing all they can to protect themselves against loss, but at the same time, they should also avoid alienating customers.
Being assertive is a far cry from being aggressive. Business owners should think of ways to extend credit to customers who need, while at the same trying to minimize potential loss. Some examples of this were mentioned above namely, requiring a down payment or post-dated checks.
Options Available for Collecting on Largely Past Due Accounts
Generally, if an account has reached over 90 days minus payment, or if either communication efforts have been continuously ignored, pledged payments aren’t met, or the individual is remarkably hostile, then it’s time to solicit outside help. There’re essentially 3 alternatives for small business proprietors looking to collect some bits of their overdue user debt:
-Take the matter to a debt collecting firm
-Take the indebted customer to small claims court
-Hire an attorney
In conclusion, by following the above-mentioned tips and strategies on effective overdue debt collection, small business owners can greatly increase their chances of recovering part or all of the past due to receivables.
