Establishing a collection plan, understanding your customers, and sending consistent, prompt invoices are all processes that can help small businesses speed up the debt collection process.
When you own or run a small business, having a consistent and steady cash flow is critical. When customers do not pay their bills on time, it can be detrimental to your business, as well as stressful and frustrating. Use our debt collection attorney’s best debt collection tips to help your small business secure the money it is owed.
Have a Payment and Collection Plan
Having a well laid-out plan for handling payments and collections can go a long way towards making the debt collection process easier. These procedures will provide the necessary historical data and documentation for your debt collection attorney to file a claim if your accounts receivable continue to go unpaid.
The first step is creating the plan. After creation, the next step is communicating this plan to your customers, preferably in writing. Providing your payment policies in advance gives your customers an understanding of what payment is expected, how long they have to pay, and any additional payment terms like late payment fees and interest rates.
When a debt goes unpaid, your debt collection attorney will help you develop a specific plan with steps to guide you through the process of collection. Typically, these plans follow a logical sequence that ensures a fair opportunity for customers to pay the debt:
- Send a written reminder
- Call the customer
- Negotiate a payment plan
- If debt goes unpaid, pursue legal action
Your employees should understand these procedures and be able to articulate them to customers as needed.
Invoice Quickly
The sooner you ask to be paid, the sooner you will be paid. Your invoice should include an accurate and detailed description of the work completed, when it was completed, the details of the product or service provided, and the payment due date.
To avoid disputes about the payment or work completed, be sure to keep accurate records, including:
- Copies of any contracts that were signed
- Work orders issued
- Bills for materials
- Emails and other communication related to the project
This documentation will be particularly helpful if you have to hire a debt collection attorney to pursue legal action against the customer. One invoicing tactic is to send a statement immediately after the due date if payment is not received. The statement lists any amount owed and the due date. It should also indicate the cost any penalty fees if the payment is not received by a certain date. Your attorney will be able to help you with the legal wording of these documents.
Understand the Debtor
Sometimes it is helpful to understand more about the customer when trying to collect a debt. There are typically three reasons a debtor does not pay:
- They want to pay but cannot because of financial issues.
- They regularly pay bills as late as possible.
- They have decided not to pay you at all.
If you know that the debtor is not paying because of financial issues, habit or avoidance, your debt collection attorney can then determine an effective follow-up strategy. Once you determine a customer has decided not to pay you at all, you should consider pursuing legal action to help you recover your funds.
Sometimes, seeing an attorney’s letterhead rather than your business’s can convince debtors that you are serious about collections. If not, then you have already started the process towards filing a claim by hiring an attorney.
The need to collect a debt is an essential part of running a profitable small business. A thoughtful plan coupled with a consistent and prompt billing process, and a deeper understanding of your customer, are excellent starting points to help make sense of the debt collection process for your small business.
If you are having trouble with your small business debt collection, contact McHughes Law Firm at (877) 750-6173 to schedule your free legal consultation.
