Small businesses depend on accurate and timely payments for debts owed to keep everything running smoothly and the books balanced. However, there are times when a debtor either puts off paying a bill or flat out doesn't pay.
Either way, if the business can't collect the money, the small business can take a financial hit. So, what are the options for small businesses that need to collect debts?
Here are a few methods a small business can use to help collect money owed by clients.
What Are The First Steps For Debt Collection?
It's not uncommon in the small business world to come across a client who doesn't pay for service or goods they've received. As a smaller business, you don't have the luxury of forgetting a few small debts, as they can really add up.
Some first steps to take in debt collection include reaching out to the customer in various ways.
- Sent out reminder emails
- Reach out via phone or text
- Sending out demand letters via snail mail
If these fail to work, your business may have to use threatening language, like a lawsuit. However, once you've sent out a letter demanding payment or a lawsuit will follow, you must act on this threat.
Some clients won't take the threat seriously and ignore the demand. Give the client a reasonable amount of time to reply, and then file a lawsuit in small claims court.
Should Small Businesses Consider Collection Agencies?
If the client refuses to pay, and you don't have the time or resources to file a lawsuit, don't threaten it. Instead, you can send the account to business collection services to help recover payment.
If the debtor refuses to respond to the demand for payment letters, small businesses can hire a collection agency to attempt to collect the debt and/or take the debtor to court. If the collection agency wins, the debtor must pay the money owed plus interest and court fees.
How Long Should A Small Business Wait Before Contacting A Collection Service?
While there is no set time as to when debt should go to collections, most companies wait several months with no payment or no contact with the debtor.
Once the debtor makes it clear he or she has no interest in paying the debt, it's time to consider collection action.
There are times when collection action is necessary to recoup money owed. However, keep in mind that the collection agency does get a percentage of the money collected.
So, before sending the account to collection, make sure it's worth the fee to receive the money owed. Small business owners can discuss the fee with the collection service to negotiate a fee and decide whether to proceed.
Reach out to a business collection service to learn more.