Establish preventative measures to help your small business with the debt collection process.
If you are a small business owner, you are often the most vulnerable when it comes to debt collection due to the vast resources accessed by larger companies. Lack of payment by just a few large clients, or many small ones, can be financially disastrous for your bottom line. Let’s take a closer look at six common debt collection mistakes and how you can avoid them in your small business.
- Lack of Information
- Not Paying Attention to Receivables
- It’s Not in Writing
- Not Screening Customers and Businesses
- Waiting Too Long to Hire a Collections Firm
- Not Hiring the Right Collections Law Firm
If you choose to offer credit to customers, you need to collect and update the right information to ensure that you can trace outstanding debts when they occur. Customer contact information, including an address, email address, multiple phone numbers, and business license information, should be updated annually at the very least.
As a small business owner, you have many demands on your time, and it is easy put off addressing delinquent customers. However, if there is too much lag time in addressing delinquent accounts, it can be more difficult for you to collect. Credit and collections should be as much of a priority as sales and marketing. You need to establish a disciplined process for collections, monitoring accounts, and contacting customers immediately after an account becomes delinquent.
This mistake may seem obvious, but it’s shocking how many financial agreements are still completed with a handshake and a nod. This may feel like a friendlier way to do business, but operating without a contract can put you and your company in a precarious position of not having the paperwork to back up your attempts to collect a debt.
If you are dealing with larger accounts, you should always properly screen the customer or business before entering into a contract or extending credit. You want to thoroughly check the customer’s credit history so you can avoid any surprises down the road. You can order a customer’s credit history from the three credit bureaus: Equifax, Experian, and TransUnion. For business-to-business transactions, you can run a credit check through a business credit rating agency.
It’s wise to first try to collect owed debts yourself, but only for a maximum of 90 days. The debtor could move out of state, go out of business, or sell property or an asset to which you could possibly attach a lien to recoup the money owed to you.
This mistake goes hand in hand with No. 5. After 90 days, it’s time to bring in a professional debt collection attorney with experience in small business debt collection. Yes, there is a cost involved with bringing in an expert firm to collect what’s owed, but the cost will certainly be less than writing off the debt completely. Similarly, you want to be sure that you hire a debt collection attorney that will partner with you and understand your business.
