What if your small business was bleeding money left and right?
Many businesses offer things like lines of credit to their loyal customers. There’s just one problem–not everyone pays you back when they are supposed to.
This puts the small business in a bind. Eliminating the lines of credit may drive some customers away, but under the existing system, the business will experience many cash flow problems.
The way to thread the needle of this problem, then, is to become a small business debt collection guru. And with our eight tips, you’ll be getting your money back in no time!
1. Target the Right Customers
In learning how to collect a debt, it’s important to understand the kinds of customers who don’t pay you back. This lets you focus your efforts on the right individuals.
Some people may wish to pay, but other financial obligations keep them from doing so. Others may be delaying payments to various debts as their own unique way of managing money.
Generally speaking, you are likelier to get your money back from these groups. The third group is individuals who never intended to pay, and they will be nearly impossible to get money from.
2. Brush Up On Your Rights
There’s a pretty good chance you never went to law school. As such, you may not fully understand your rights when it comes to small business debt collection.
It’s not too late, though, to brush up on your legal rights. This gives you a good idea of what actions are available to you and will also give you leverage when talking with customers.
Finally, you’ll know when it’s time to take the issue to a small claims court. Be sure to get more information before you go that route!
3. Get More Direct Over Time
Believe it or not, one of the most difficult things when it comes to collecting a debt is which tone you should take. How forceful should you be?
If you start out overly intense or forceful, it may ruin interactions with people who genuinely intended to pay. That’s why you should start gradually and then work your way up.
Your first interaction with the customer should be gentle and give them the benefit of the doubt. The second should be more assertive, and the third interaction should be completely blunt about what is owed and when you need it by, lest they risk further legal action.
4. Put It In Writing
Whether they were genuinely ignorant or simply looking for a loophole, many customers who do not pay a debt say the same thing. “I didn’t know about that!”
It’s important to put your policies in writing and include them on every invoice. On top of that, make sure they get it right away, giving them an invoice at point of sale and including it on other documents.
This will help prevent debt collection cases where customers genuinely didn’t understand the policy. And it builds a necessary legal foundation in case you ever have to take the customer to court.
Keep in mind that good legal security like this is just as important as business security!
5. Document All Interactions
Earlier, we discussed the importance of putting your policy on writing. Keep in mind, though, that it’s just as important to document all of your interactions with customers.
If you call the customer about a debt, be sure to write down the day and time and make notes about the conversation. If you send them letters, be sure to copy and certify each document. And, of course, save every e-mail that you send to customers.
All of this is intended to help you in any possible cases that go to small claims court. If it comes to that, you’ll have a small mountain of evidence to help you win the case!
6. Multiple Methods of Contact
You’ll notice that when we talked about documenting your attempts at collecting debts, we listed a variety of contact methods. You should be using all of these methods instead of relying on just one.
If you only e-mail the customer, for instance, the message may genuinely get lost in a Clutter or Junk folder. If you are also calling them and sending certified letters, though, you will know for sure that they are aware of their debt.
Overall, it doesn’t take that much longer to use different methods of contact. But it can save you a whole lot of time in collecting debts!
7. Offer Settlements
When you try to collect debts, it’s tempting to focus on “all or nothing.” After all, the customers owe what they owe, and nothing less. Sometimes, though, a settlement is best for everyone involved.
Settlement offers should be reserved for customers that are four months (or more) past due. These are the people you are least likely to get money from, but a settlement can be alluring to them.
If they owe $1000 and you offer a settlement of $500, it may be attractive enough to make them pay. As for you, don’t think of it as “losing” $500: think of it as gaining $500 where you would have previously gotten nothing!
8. Use a Collection Agency
Using a collection agency is basically your final option for collecting debts. So far, we’ve focused on things you can do yourself to get the money that you ow, but a collection agency may find success where you could not.
If you plan to hire such an agency, make sure you do your homework ahead of time. You’ll want to explore the policy they have regarding fees as well as their reputation in the small business community.
Finally, be sure to forward all of the communications and other documents you have collected for the customer in debt. This can help to expedite things and ultimately get you the money that is owed!
Small Business Debt Collection: The Bottom Line
Now you know some of the top secrets to small business debt collection. However, do you know how else your business can improve cash flow?
At FindABusinessThat, we focus on helping consumers find businesses and businesses find success. To see how we can transform your small business, come check out our business resources today!