How to collect small business debt

How to collect small business debt

Unfortunately, a lot of small businesses are not handling the process of debt collection well and give accounts receivables a low priority. But the success of a thriving business and its working capital can seriously be threatened by past due payments hence it is important to monitor cash flow and ageing receivables on a monthly basis if not more frequently. Especially small businesses rely on positive cash flow and can seldom afford to waste time and human resources to the process of debt recovery. To ensure that you get paid and can avoid going through a stressful time following up delinquent customers, we have put together some methods to make debt collection easier.

Run credit checks

To reduce overdue accounts, it is advisable to run a credit check on new potential customers including media sources, trade checks, bankruptcy filings and lawsuits to identify potential red flags. Retrieving information through the bank of the future client can help to gain insight into how they have maintained their accounts in the past.

Have a collection policy

Even though handshake deals and verbal agreements are a plus in a good work relationship, it is inevitable to include your collection policy with timelines for payment into the contract. The agreement should furthermore inform about the accepted forms of payment and any additional fees regarding late payment.

Send early reminders

Once a customer’s payment is past the due date it is important to place a hold on their account immediately and send out a friendly email reminder. In case your attempt to communicate the issue is ignored, it likely this special customer will accumulate debt and you will have to work out quickly how to successfully collect the money owed.

Think positive

If a customer is not paying you on time you should not take it personally but look into why the bill is late. Sometimes the problem lies in your very own department as their form of payment is not accepted by your bank, the currency in your deal if your work internationally, or maybe the invoice isn’t clear to understand. Always make sure your invoice holds all the details needed to get paid on time.

Stay professional

When trying to retrieve accounts receivables, remind your finance department to always stay professional and never to threaten or intimidate customers who did not pay their invoices on time. This is very important for future customer relation and a lot of times there are reasons why the receivable is past due date. In order to receive full payment, consider offering flexible payment options.

Support your collection team

Follow-ups on account receivables is a hard and stressful job. Make sure your finance department gets the proper support from experts and regular training in handling challenging collection calls and best practice techniques in order to effectively retrieve the payments past due date.

Know the laws

Local laws typically regulate debt collection and any violation may lead to legal action. It is therefore important that in the process of debt recovery you are compliant with the regulations of your territory. If you are unsure of the latest laws regarding debt recovery in your state, it is worthwhile contacting a collection agency for advice.

Hire an expert

Since debt collection is such a stressful process that puts a strain on a financial department, a lot of Australian businesses have hired a collection agency to collect accounts receivables. One of the very advantages of outsourcing the follow up of delinquent customers is that such professionals not only know the law by heart but also keep on track with making calls, sending reminder emails and negotiating payment.

Business debt is money which is owed by a business. Business debt can come in many forms. Business debts can be owed to an individual, another business or to the government. It may also be owed to consumers of the business itself.

A business which owes money to another entity of any kind is called a debtor. The individual or entity to which the money is owed is called a creditor.

Which Business Owners Owe Debt?

Whether the debt of a business is owed by an individual owner or the business itself depends on the type of business. If the business is a sole proprietorship , or a business which is owned by an individual, the single individual and their business are treated as the same entity in the eyes of the law.

The owner of a sole proprietorship is personally liable for the debts of their business. This means that if the business does not have the money or assets to satisfy the debts it owes to a creditor, that creditor may take the owner’s personal assets in order to satisfy the debt that is owed.

If the business is a general partnership , however, the rules regarding the debt of the business are different. In a partnership, two or more individuals share in all assets and debts of a business.

In the case of a partnership, the debt belongs to each of the partners. If a business is structured as a partnership, the partners may share in the liability for any of the debts of the partnership. In some cases, the partners may agree to be responsible for paying a certain amount of the partnership’s debt.

In a general partnership, any of the partners may be liable for the entire amount of the partnership’s debt. Therefore, if there is one partner with little money or assets, a creditor may seize the money or assets of other partners in order to satisfy the debt.

After the debt is satisfied the other partners may seek reimbursement under the partnership agreement from the partner who could not pay. However, it is important to note that if the partner did not have the funds to pay the creditors, they likely will not have the funds to reimburse the other partners.

Two other common types of business structures are corporations and limited liability companies (LLCs). In these types of businesses, the owners and the business entity are two separate entities in the eyes of the law.

Because of this, owners are generally not held personally liable for the debts of the business. In other words, a creditor cannot take individual assets from the owner to satisfy a debt.

How are Business Debt Disputes Resolved?

If a business cannot satisfy their debts owed to creditors in a timely fashion, the business may attempt to negotiate an agreement for the payment of the debt. One such type of agreement is a settlement agreement .

A settlement agreement is an agreement between the business and the creditor that includes payment terms, length of payments, and amount of payments. In some circumstances, the settlement agreement may allow a business to pay less than the entire amount that is owed. The settlement agreement may also specify an interest rate at which the payments are to be made.

The parties to the debt dispute may also attempt to settle the dispute using alternative dispute resolution methods such as mediation or arbitration. Mediation involves a neutral third party, known as a mediator, who hears each side of a dispute and attempts to assist the parties in reaching a resolution that is satisfactory to all.

Mediations are typically non-binding. This means that if the parties do not reach an agreement during mediation, they can still pursue other avenues such as arbitration or a lawsuit.

During an arbitration, the parties to the dispute agree to submit their dispute to the arbitrator. An arbitrator typically has experience resolving business disputes. Arbitrations are typically binding, which means the outcome is final and cannot be altered.

What is Debt Collection?

Debt collection is a process used by creditors to satisfy a debt owed to them. If settlement agreement efforts, mediation, or arbitration are not successful in resolving the issue, the creditor may file a debt collection civil lawsuit in court to recover the money they are owed.

If a creditor wishes to collect on a debt, they may be required to first give notice to the business debtor that they intend to collect on the debt. Once the required notice is given, the creditor may file a lawsuit against the business and the business owners to satisfy the debt.

In some cases, the creditor and the debtor are in agreement regarding the amount of the debt. In other cases, the parties may dispute the amount of debt owed.

In a lawsuit, the court will hear the arguments of both parties. Each party will present their cases, including what they believe is owed.

The parties may be required to present evidence to the court supporting their claims, which may include loan documents or promissory notes. The court will hear the evidence and issue a decision regarding the dispute.

The court will issue an order once it has reached a decision. This order will outline what amount of debt is owed and how that debt is to be paid.

What if a Business Debt Involves a COVID-19 Issue? How are These Types of Issues Resolved?

Coronavirus, or COVID-19 has changed many aspects of American’s lives, including how business debt may be handled. Many individuals have faced a reduction in their income or even job loss. It may be challenging for individuals to keep up with mortgage payments, credit card bills, and even business debts during this time.

There are many credit card issuers who have provided assistance to their customers including collection forbearance. This may assist some businesses, especially small businesses, in recovering from debt during this time.

In addition, there are banks, credit unions, and other financial institutions that are offering loan extensions and deferred payment options for both personal and small business loans. There may also be governmental programs that provide relief for businesses during this time.

How Long Can Court Proceedings Take?

The amount of time court proceedings take depends on many variables, including the amount of money the debtor owes. If the debtor owes a substantial amount of money, typically five thousand dollars or more, the lawsuit will be filed in a state trial court.

In a trial court, a dispute may take months or even years to resolve. In addition, the more complex the case is, the longer it takes to reach a resolution.

If the debtor owes a smaller amount of debt, typically five thousand dollars or less, the creditor may choose to file a lawsuit in small claims court . Cases in small claims court typically take less time to resolve than those in a trial court. One reason for this is that the rules and procedures regarding evidence are less formal than in a trial court.

Do I Need a Lawyer for Help Resolving a Business Debt Dispute?

Yes, it is essential to have the help of an experienced business attorney for resolving your business debt. An attorney can provide you advice regarding your rights and your options for settling your debt. Your attorney can represent you during any alternative dispute resolution proceedings and in court, if necessary.

How to collect small business debt

Man sitting in home office, reading letter and felling worried. With one hand holding letter and with other hes forehead

By Michael Jones

Being a small business owner and having to run the daily operations of your company is tough, but having to collect consumer debts makes your job even tougher. Collecting from customers who owe you money is one of the trickiest parts of owning a small business, it can also impact your ability to get a small business loan. Understanding what kind of customer you are collecting from will increase your chances of collection. Generally, these customers will fall into one of three categories:

  1. Customers that want to pay, but cannot financially afford to do so.
  2. Customers that try to procrastinate paying for as long as possible (often juggling multiple other payments/priorities).
  3. Customers that will do anything to not pay you.

Preventive Measures

Small businesses can implement policies and procedures to decrease the likelihood that a customer becomes delinquent. Having a sales contract before providing any goods or services can help your customer (and a court) understand what the responsibilities for paying are, when payment needs to be made by, and what the consequences are for failure to comply (e.g., late fees, interest, etc.).

It is also important to ensure that every bill or invoice you send lists the due date. The sooner you send the bill or invoice, the sooner you will get paid (at least theoretically). If the payment has become past due, sending an additional notice stating such will often remedy the situation. Remember to keep records of any contact with your delinquent customers in the case that you have to escalate to formal collection.

Negotiation

Many customers want to pay, but may have simply forgotten or are facing tough times. How you deal with these customers will greatly affect how your small business is viewed. Try to maintain good relations with your delinquent customers whenever possible. You might even be able to convert a formerly lukewarm customer to a lifelong one.

Finances permitting, you may decide to workout a payment plan or waive a late fee to demonstrate your impeccable customer service and willingness to come to an amicable solution. If you are successful at working out an arrangement with your delinquent customer, this can save you a potentially lengthy and expensive formal collection.

Depending on each particular case, you may also want to discontinue delivery of all goods and services that the delinquent customer receives. This can also be an area where you negotiate the amount of time that needs to pass or the amount of goods or services that will be limited until payment is made.

Collection Options

If you have failed to reach a workable solution with your delinquent customer, you essentially have three options:

  1. Collect the debt yourself
  2. Use an attorney
  3. Turn over the debt to a debt collection agency

Any of these three routes can prove to be a lengthy process, but collecting the debt yourself can save you hefty fees (collection agencies sometimes charge up to 50% of the total amount to be collected, while attorney’s fees may exceed the total amount owed). You might consider writing a demand letter that summarizes the account status, past bills/invoices, and any other past communications. Although the letter should not be directly threatening, it should reference what steps you legitimately plan on taking for nonpayment. Rocket Lawyer has a great library of documents you can reference, including templates.

Depending on the state, if the amount owed is small (less than $10,000), you might consider taking the delinquent customer to small claims court. Small claims court was designed to be a quick and inexpensive way to collect smaller debts. Most states will have a self-help section or guide on their state court websites. Here’s a great breakdown by state from Nolo.

For larger amounts, you may decide to hire an attorney to sue in civil court. Many websites out there offer attorney-matching services such as: Avvo and Rocket Lawyer. If you are successful and have obtained a civil judgment against your delinquent customer, the court may set up a payment plan or your attorney may help you take further action such as garnishing wages and/or attaching liens.

If you decide to turn over the debt to a debt collection service, it can save you a lot of headaches. Here’s a list of the top debt collection services compiled by Consumer Affairs. Some customers are scared that it will affect their credit(be sure to warn them first) and other customers do not care about their credits and still may not pay. Be aware that how the debt collection service treats your delinquent customers will often be imparted on to your business. In addition, be sure when selecting a service that they are compliant with state and federal regulations for debt collection such as the Fair Debt Collection Practices Act.

These same laws will apply to you even if you are not using a service and are collecting your own small business debts. Most are common sense:

  1. Don’t call at unreasonable hours
  2. Seizing property that you do not have legal authority to seize
  3. Intimidating the debtor through false pretenses (e.g. pretending to be a lawyer)

See this explanation of illegal debt collection practices.

Michael Jones is the director of community development at Bond Street — a company focused on making small business loans simple, transparent and fair. Bond Street provides one to three year term loans from $50,000 to $500,000 range with rates starting at 6%. You can follow Bond Street on Twitter here.

If you have a small company, you know how hard debt collection can be. Small business debt collection is most frequently one of the primary failing points of new companies around the nation. With just a little practice and guts, you can lower the number of late payments which are due to you, and also develop a comprehension of when to anticipate non-payment of a client. It’s possible to learn communication abilities, in which you can spot debt issues before they become too large, or even before they happen at all!

  1. Clients and customers who will go to any lengths to avoid paying.
  2. Clients and customers that ordinarily possess lots of obligations due at once and or sporadically.
  3. Clients and customers that normally pay on time, but can’t due to financial trouble.

Generally, you want to make sure that your customers and clients fall into the previous two categories. You’ll have the ability to handle and utilize those who fall into the previous two categories since they have a history of earning partial or full payments. As a small business operator, but you have to have the ability to devise a plan and process of figuring out which customers and clients fall into the first class. Generally, you’ll want act fast with respect to this first sort of client, possibly by calling a collections bureau or contemplating lawsuit to collect the debt owed.

There’s a general principle which needs to be implemented in the majority of small business debt collection — act fast and keep determined.

Regardless of what type of customer or client you’re handling, acting fast will make certain you keep your right to the money owed, and remaining determined can make certain you get paid in full. You need to send invoices and reminders to debt-owing customers and clients on a regular basis. That is both a fantastic customer service policy in addition to a smart legal move.

No Harassment

If your activities could be considered harassing, you might end up losing a client in addition to facing a legal challenge. If you telephone your debtors, then make certain not to depart more than 1 message every day, rather than endanger or talk ill of a debtor.

Keep telephone calls brief.

To maintain phone calls brief, make confident that you’re on message, formal and short. Try to make certain that the individual on the opposite end of this line doesn’t require the telephone call personally. Don’t suggest that neglecting to make a payment would be just like an individual failure. Make sure you remain calm throughout the dialogue but constantly be clear that there’s a debt that has to be paid off.

Send letters.

You need to make certain to send these along with making telephone calls. Save copies of every letter you send. They might be beneficial in case you need to attend a collections service.

Obtain a collection service to write demand letters.

Collection agencies are pros when it comes to getting money that’s past due. Because of this, it’s no surprise that they compose great demand letters too. Many collections agencies supply this letter writing support at a predetermined price. You will normally receive a collection of letters to trade, every one escalating in strength.

Give to settle for less than is expected.

If you believe a debtor will be ready to do this, you might choose to provide to resolve for less than is because of your small company. This is a frequently used strategy for customers and clients which don’t have any true expectation of paying off the debt that they owe. This settlement ought to be made official in a legal record that reveals a payment of less than is expected that suits the whole debt.

Hire a Collection Agency

These agencies often charge up to 50% of what they gather, but obtaining some cash is frequently better than getting nothing. If you don’t need to experience a collection agency, you have the choice of filing a suit to find the money you are owed. Depending upon your condition, you could have the ability to submit a claim in tiny claims court to recoup the money owed to your organization.

Small claims court

Small claims court is a good stadium for smaller companies since these courts are made to eliminate the high expenses of lawyers and other court charges. In reality, small claims courts are such a favorite instrument for companies to use to collect debts which, based on at least one report, 60 percent of all filings in tiny claims courts are of small businesses.

Sue Start a Lawsuit

If small claims court isn’t feasible for you, and the quantity of money is too good to hand over 50 percent of it into a collection agency, you might need to file a lawsuit to recoup the debt. There are higher costs associated with this technique, but like fees for lawyers in addition to court costs.

If you are attempting to accumulate from late-paying (or non-paying) clients, it may have a severe effect on your ability to conduct business, while consuming precious time and resources. Ensure that you’re doing it economically and in compliance with the legislation by talking with a lawyer.

If you've got delinquent customers and you need to collect on their debts, make sure you understand the pertinent laws before proceeding.

Collecting from customers that can’t or won’t pay you is one of the trickiest parts of running a small business. If you're too lenient, you could go bankrupt; if you're too strict, you could turn away good customers who just need a little flexibility; and if you're too aggressive, you could find yourself being sued by a federal agency or a state's attorney general. This last mistake—being too aggressive—could have dire consequences for your business.

Debt collection generates hundreds of thousands of consumer complaints annually, more than any other regulated activity, so both federal and state government agencies have made it their mission to crack down on aggressive and illegal debt-collection practices. Most of these government efforts are focused on fining or shutting down shady debt collection agencies that willfully run afoul of the law and use any means necessary to collect.

But whenever you have complicated legislation and multiple government agencies working together, innocent bystanders can accidentally get caught in the middle. This means you.

The Fair Debt Collection Practices Act (FDCPA) became law in 1977, and it governs how debts may be collected. The law mainly regulates companies that are engaged in the business of collecting debts on behalf of clients or that buy debt at a discount price with the goal of collecting on it.

From 1977 through 2010, the FDCPA was enforced primarily by the Federal Trade Commission (FTC), which investigates and sues companies that conduct “unfair and deceptive trade practices.” The Dodd-Frank Act of 2010 moved primary enforcement responsibility of the law from the FTC to the Consumer Financial Protection Bureau (CFPB), giving it the power to issues rules, guidance and regulations. As of January 2013, the CFPB began overseeing debt collection, focusing for the time being on debt collection agencies with more than $10 million in debt collection-related revenues.

Are You a Debt Collector?

If you fall beneath the $10 million line, does that mean you don’t have to worry about debt collection laws? Nope. Under certain scenarios, simply trying to collect what your business is owed could trigger provisions in the law that will make you subject to debt-collection laws. There are three such scenarios:

1. Acting like a debt-collection company. The FDCPA generally exempts companies that are collecting their own debts. But if your business uses certain collection tactics, then you're required to comply with the law. For instance, if you use any name other than your official company’s name when trying to collect on business debts, then you trigger the FDCPA. A simple example would be General Landscaping Solutions Inc. sending a debt collection letter to a delinquent customer under the heading “GLS Collections.”

If you use third parties for "dunning" management, then you'll also trigger the FDCPA. Dunning is the process of “methodically communicating with customers to ensure collections of accounts receivables.” Many small businesses outsource this service, which typically means sending letters or emails monthly until you've been paid. The letters start out as gentle reminders but they usually become more aggressive as time goes on.

2. Living in a state where you're considered a debt-collection company. The FDCPA is like the federal minimum wage law—state governments can’t go below it, but they're free to go above it. Because of that, some states have enacted laws that are enforced by their attorneys general that go far beyond the guidelines of the FDCPA. Many of these states specifically include “creditors collecting on their own behalf” within their regulations. Such states include California, Colorado, Connecticut, Florida, Iowa, Louisiana, Maryland, Massachusetts and New York. Since these laws can change at any time, it’s important to stay abreast of what’s happening in your state.

3. Being identified by the CFPB as a debt-collection company. The CFPB has tremendous power and flexibility in determining which types of companies are subject to its regulations. Any company deemed by the CFPB to be a “larger participant” in the finance sector can be regulated by it. Once this happens, the CFPB can define what it considers to be “unfair, deceptive or abusive acts or practices” and prohibit them. While it’s unlikely a small business will fall directly under CFPB regulations, the companies you hire—or that hire you—just might. Recently, the CFPB started cracking down on companies that process credit card payments on behalf of debt collectors that are non-compliant with debt-collection regulations.

Play it Safe

If you need to collect debts—and what small business doesn't?—what should you do? Toe the line to make sure you don’t fall under the jurisdiction of debt collectors? Comply with debt-collection laws even if you don’t have to? Hire someone else to worry about it?

Implementing both the second and third options together is probably your best defense. The FDCPA, FTC and CFPB all require behavior that could be considered common-sense decency when trying to collect a debt on your own behalf. Some of the things you can’t do are:

  • Call at unreasonable hours
  • Add additional fees or interest that weren’t part of the original agreement
  • Purposely delay posting the payment to the customer’s account for the sake of adding more fees and interest
  • Confiscate property despite not having the legal authority to do so
  • Tell the debtor's employer or co-workers about the debt (if it’s a person and not a company)
  • Lie about how much the debtor owes
  • Pretend to be a lawyer to intimidate the debtor
  • Pretend you represent the government
  • Lie about whether or not you'll report the debt to the credit bureaus
  • Make false threats about suing the debtor, having them arrested or sending them to prison for non-payment

For larger debts or if you have a significant volume of uncollected debts, hire a reputable third-party debt collector. Just make sure they take compliance with all applicable state and federal regulations very seriously. If you don't hire carefully, even if you don’t get sued for something your debt collector does, it’s likely you won’t ever see the money you hired them to collect.

My client won’t pay me. My customer refuses to pay me. Help! Our client won’t pay us for what they bought — Sadly, we’ve heard these laments from many entrepreneurs victimized by scumbags who won’t pay up. Here are a few tips on collecting those business debts.

What can you do when a customer doesn’t pay for goods and services you’ve already delivered?

Is it necessary to pursue legal action to collect what you are owed? Are there other ways to collect unpaid business debts?

Here are a few options for collecting business debts, as well as some general tips on business debt collection.

Be a Pain

If you never remind your customer that they owe you money, you will probably never get paid. Be sure to contact them frequently to ask them status on payment. Send them monthly statements to make sure they know you haven’t forgotten about the debt. When it comes to debt collection, the squeaky wheel is the one that gets paid.

Threaten to Sue

Before you sue, threaten to sue. You will want to send them a demand letter that demands payment and clearly lays out the consequences of nonpayment. (We’ve got a sample demand letter for bad collection that is worth reading.)

Sometimes the threat of a lawsuit will work wonders on getting a deadbeat business to pay up. However, if you talk the talk, you better be ready to walk the walk. You don’t want to make an idle threat. If you promise to initiate legal proceeding on a specific date, do so.

Small Claims Court

If the dollar amount is not too large, small claims court is a great option. Just visit the small claims court and ask how to file a claims action. After you complete the paperwork, the court will set a date for your case.

The filing fees are reasonable, and it’s a fairly quick process. Plus, the nice thing is you don’t have to hire an attorney.

In the absence of lawyer fees, it’s worthwhile to pursue small claims, and that’s why small claims courts were created. Without small claims court, you would have no good legal recourse to chase after small amounts of money.

The downside is that small claims only works if the amount of money you are owed is small. Every court has different limits, so you will need to check with your court.

Civil Court Filing

If you’ve been stiffed for larger amounts of money, you’ll need to file in civil court. This is a more complex process, and while a lawyer is not required, you need a lawyer to be credible.

The more impressive your lawyer, the more likely the debtor will settle. If you use your cousin Marvin, the real estate lawyer, to file the suit, the debtor is not going to be overly intimidated.

Lawyers work on either a time and materials basis or on a contingency basis. Most good debt collection lawyers won’t take a case where the amount owed is less than, say, $40,000. That’s because if the court goes to trial and the amount owed isn’t too large, the legal fees can add up to the point where you may drop the case.

If you go with a lawyer who works on a contingency basis, expect them to ask for 15% or more of the amount collected.

Debt Collectors

Hiring a collection agency is appropriate in some instances but not in others. It’s a good idea to call a number of collection agencies and explain your situation to them. They will let you know if they think they can collect the debt. Be aware that many scumbag businesses out there don’t flinch when a collection agency chases after them. If you think your debtors are serial bad guys who constantly purchase products and services, it’s best to bypass the debt collectors and go straight to the legal system.

Mediation

Occasionally, parties involved in a dispute will hire a mediator to help the parties arrive at a settlement. In this case, two sides must still voluntarily agree on a settlement. Even if there’s bad blood between you and the debtor, a mediator may be able to resolve the issue by refocusing the conversation on the facts.

Contacting the Authorities

If cannot collect money that is owed to you, you can contact the Better Business Bureau and your state’s credit bureau. You can have your bad debt recorded on the scumbag’s credit record. Justice may play out years later when a bank or investor refuses to do business with the debtor because of the bad debt.

You Can’t Get Blood from a Stone

As you consider your options, assess the debtors ability to pay. If they are loaded with cash, you can have the courts attach their assets. However, if they are on the verge of bankruptcy, you may be throwing good money after bad. In the latter case, you may want to settle for less and get what you can before it’s too late to get any payment at all.

When All Else Fails, Count on Karma

There are some who say that the stress you incur in chasing after debtors isn’t worth it. They recommend you forget the money that is owed to you and just move on. Focus on acquiring new business and chalk the bad debt up to being a painful lesson learned.

Karma will get the bad debtor because what comes around goes around, as they say.

We are not a big fan of this approach. Bad business behavior needs to be punished or else it will continue. By chasing after the debtor for payment, they may think twice about not paying the next guy. In other words, you may be protecting another innocent entrepreneur from being abused.

But that’s just our opinion – if karma works for you and you want to just walk away, go for it.

How to collect small business debt

Unfortunately, a lot of small businesses are not handling the process of debt collection well and give accounts receivables a low priority. But the success of a thriving business and its working capital can seriously be threatened by past due payments hence it is important to monitor cash flow and ageing receivables on a monthly basis if not more frequently. Especially small businesses rely on positive cash flow and can seldom afford to waste time and human resources to the process of debt recovery. To ensure that you get paid and can avoid going through a stressful time following up delinquent customers, we have put together some methods to make debt collection easier.

Run credit checks

To reduce overdue accounts, it is advisable to run a credit check on new potential customers including media sources, trade checks, bankruptcy filings and lawsuits to identify potential red flags. Retrieving information through the bank of the future client can help to gain insight into how they have maintained their accounts in the past.

Have a collection policy

Even though handshake deals and verbal agreements are a plus in a good work relationship, it is inevitable to include your collection policy with timelines for payment into the contract. The agreement should furthermore inform about the accepted forms of payment and any additional fees regarding late payment.

Send early reminders

Once a customer’s payment is past the due date it is important to place a hold on their account immediately and send out a friendly email reminder. In case your attempt to communicate the issue is ignored, it likely this special customer will accumulate debt and you will have to work out quickly how to successfully collect the money owed.

Think positive

If a customer is not paying you on time you should not take it personally but look into why the bill is late. Sometimes the problem lies in your very own department as their form of payment is not accepted by your bank, the currency in your deal if your work internationally, or maybe the invoice isn’t clear to understand. Always make sure your invoice holds all the details needed to get paid on time.

Stay professional

When trying to retrieve accounts receivables, remind your finance department to always stay professional and never to threaten or intimidate customers who did not pay their invoices on time. This is very important for future customer relation and a lot of times there are reasons why the receivable is past due date. In order to receive full payment, consider offering flexible payment options.

Support your collection team

Follow-ups on account receivables is a hard and stressful job. Make sure your finance department gets the proper support from experts and regular training in handling challenging collection calls and best practice techniques in order to effectively retrieve the payments past due date.

Know the laws

Local laws typically regulate debt collection and any violation may lead to legal action. It is therefore important that in the process of debt recovery you are compliant with the regulations of your territory. If you are unsure of the latest laws regarding debt recovery in your state, it is worthwhile contacting a collection agency for advice.

Hire an expert

Since debt collection is such a stressful process that puts a strain on a financial department, a lot of Australian businesses have hired a collection agency to collect accounts receivables. One of the very advantages of outsourcing the follow up of delinquent customers is that such professionals not only know the law by heart but also keep on track with making calls, sending reminder emails and negotiating payment.

You’ve tried everything from reasoning with your customer to sending a demand letter, clearly stating the debt they owe and the payment schedule. Yet despite your most noble attempts at legally collecting on a past-due account, your efforts have fallen short and the customer still hasn’t paid. Small businesses often survive on a very tight budget and failing to receive promised revenue on an account can have a negative impact on your future. If you are thinking of collecting on a business debt in small claims court, there are several procedures you will want to follow both leading up to your court date and collecting on the judgment after you win.

Small Claims Filing Procedures

First, let’s understand what small claims court is and isn’t. Small claims court involves civil disputes surrounding smaller amounts of money. They are places to receive some legal recourse on your outstanding debt, but only up to a certain monetary limit. They are not places where you will expect to receive hundreds of thousands of dollars in unpaid account fees and costs from your delinquent customer. Instead, each court has its own individual limit by state. For instance, in California you may file in a claim in their small claims court system assuming it doesn’t go over $10,000 for individuals and sole proprietors and $5,000 for any corporation or other entity.

If your claim involves anything over that amount, you will have to file in the superior court. Remember, you will want to file the paperwork initiating the small claims action only after you’ve exhausted other collection attempts such as sending the demand letter.

I Run a Business. Do I Also Have to Appear in Court?

Now that you’ve filed the lawsuit, the next question is whether or not you will personally appear in court. We know how busy you are with running your business, revising your goals and strategy for success, and ensuring employee development. Trying to cram a day in court into your schedule can cost you money. Each state is different and many will allow different representatives to appear in court on behalf of the plaintiff. Some states allow attorneys to appear, others let bill collectors represent you, while still others don’t allow either and may require you or one of your employees to appear. Always check with a lawyer first or contact the small claims court to learn more.

Collecting on a Small Claims Judgment

Let’s assume you’ve followed all the correct procedures, including filing the right paperwork, properly serving the debtor with notice of your small claims action, you won. Congratulations, but now you must deal with collecting from the person or entity that failed to pay you in the first place. If you are lucky, the person will come to court ready to pay immediately. If not, you may need a writ of execution. This is a court order directing local law enforcement to help you collect on your judgment by asking to garnish the debtor’s wages or even attach the debtor’s bank account. Learn more about these procedures from a local attorney.

Collecting on a Debt in Small Claims Court: Related Resources

Find Out How to Collect in Small Claims Court

Nothing can be more frustrating that having to go to court to collect on delinquent account. It may take time and effort away from what matters most: running your small business. But the good news is that you may not have to appear at all, depending on the rules in your state. Consider speaking with a collections lawyer in your area to learn more about local small claims filing procedures and more.

Choose the right agency for the needs of your business

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If you’re a business owner or handle invoicing for a company, you know what a burden unpaid invoices can be. According to a study by independent consulting firm Plum, 11% of all invoices issued by small and medium-sized enterprises are paid late, totaling more than $1 trillion per year.

How much you can expect to collect on your own depends on your industry and clients. However, spending time chasing down delinquent accounts can cost you valuable time and human resources. In the United States, companies need to allocate an average of 15 workdays to follow up on late payments, adding to their administrative burdens.

Instead of doing the work yourself, hiring a debt collection agency can be a smart alternative. By working with a professional company, you can collect outstanding debt and save time. We reviewed companies based on their minimum requirements, transparency, fees, and more.

The 5 Best Debt Collection Agencies of 2021

Atradius Collections

Best Overall

How to collect small business debt

The Kaplan Group

Best for Commercial Collections

How to collect small business debt

Summit Account Resolution

Best for Consumer Collections

How to collect small business debt

Rocket Receivables

Best for Small Businesses

How to collect small business debt

Prestige Services Inc.

Best for Low Invoice Amounts

How to collect small business debt

  • Atradius Collections
  • The Kaplan Group
  • Summit Account Resolution
  • Rocket Receivables
  • Prestige Services Inc.

Best Overall : Atradius Collections

How to collect small business debt

No minimum debt amount

Free instant online quote

Experienced with international companies

Extra commissions charged on older invoices

Added fees for international invoices

Atradius Collections has been in operation since 1925 and is a leading commercial debt collection agency. Based in the Netherlands, the company is a member of several different debt collection trade associations throughout the world, including the International Association of Commercial Collectors (IACC), the Credit Services Association, and the Federation of European Credit Management Associations.

Atradius Collections supports more than 15,000 customers and handles more than 90,000 cases of commercial debt per year. Atradius Collections provides commercial debt support worldwide, working in more than 30 different countries.

Unlike many companies, Atradius Collections does not have a required minimum on debt. Its fees are dependent on your invoice amount and client location. The commission fees were not readily available on the Atradius Collections site.

For an invoice that is 180 days overdue or more, Atradius Collections will charge you an additional 2% commission on top of its standard rate. If you have international clients that have not paid their invoices, you’ll pay an introduction fee and a higher commission than if they were based in the United States.

The company offers comprehensive services, including amicable debt collections, legal collections worldwide, insolvency services against bankrupt debtors, and standby services. Atradius Collections operates the Collect@Net online platform so you can monitor the collection progress.

Why We Chose It: Atradius stands apart from the competition because of its strong reputation, international expertise, and transparent fees. It’s also the only agency that allows you to get an instant, detailed quote online without having to first speak to a representative.