Past due accounts can slow down your operations, creating cash flow problems and making it more difficult to pay for inventory, wages, production, and other operational expenses. And having to fight tooth-and-nail to collect adds even more stress to you as a business owner.
It’s an extremely difficult hardship and one that contributes to the 82 percent of businesses that fail due to cash management problems. In this article, we’re going to help you avoid the muck by giving you our picks for the five best ways to collect without grinding your business to a halt.
1. Offer Options for Past Due Accounts
Try to work out a payment plan with the customer. This could involve breaking up the bill into smaller, more manageable payments. If the customer is uncooperative or unwilling to work out a payment plan, send them a final notice or demand letter giving them a specific amount of time to pay off the debt. If the customer still does not respond, contact a debt recovery service to help you collect.
2. Weigh Your Legal Options
Of course, you always have the option of taking the matter to court. Before doing so, consider the following factors:
- How much money is owed?
- Are you confident that the person owes you the money and that they have the ability to pay?
- Is the debt well-documented?
- Do you have their agreement to repay the debt in writing?
- Do you have proof that your end of the transaction was upheld?
- Is the amount worth pursuing legally, or would it all be drained in legal fees?
You should also consider whether or not you have a good working relationship with the person. If you do, don’t give that up easily. Be willing to negotiate as much as you can. However, if the person is ignoring your attempts or stonewalling, stand up for your rights.
Viable legal options may include garnishing the customer’s wages. For this, you will need a court order. Similarly, a court order can help you seize the customer’s assets, such as their bank account or property.
3. Turn Over Debt to Collection Agency
Another option is to turn over the past due accounts to a collection agency or sell it to a third-party lender.
You will need to compile all of the pertinent information about the debt, including the amount owed, the date it was incurred, and the contact information for the debtor. Then, you will need to find a reputable third-party lender who is willing to purchase the debt.
Selling a debt could leave a negative impression on the debtor if a third-party company violates any laws or gets overly aggressive in its tactics. Vet the company’s reputation thoroughly if going this route. You can collect on what you’re owed without making lifelong enemies.
This is one of the things that has helped Southwest Recovery Services over the years. We’ve been committed to getting our customers paid quickly and responsibly. We do this through adherence to the Fair Debt Collection Practices Act and the Fair Credit Reporting Act. You can read more about our standards here.
4. Send Account to Credit Reporting Agency
You can also send the account to a credit reporting agency, which will damage the customer’s credit score.
You’re certainly within your rights to report unpaid debt to a credit bureau. If the customer wants to repair their credit (and it’s likely they will if they wish to buy a home or car), they’ll pay the debt at some point.
On the other hand, reporting the debt can do long-term damage to the debtor’s credit report and may make them less likely to pay. It’s best to first exhaust every option of collecting or settling the debt before resorting to this option.
5. Negotiate a Settlement
Finally, you can always try to negotiate a settlement with the customer.
In this scenario, they would agree to pay off the debt for less than what is owed. This is known as a “pay for delete” agreement. It’s definitely not ideal, and going it alone will almost certainly result in shortchanging yourself.
A better option is to use a debt recovery service. This keeps the emotions and susceptibility to manipulation out of it. You show the debtor that you mean business while also exercising enough leniency to motivate them to action.
Furthermore, a debt recovery service will likely be able to get a higher percentage of what is owed than you could on your own. After all, your first devotion is to the operations of your business, not acting as a full-time collection agency.
Do You Have Any (Way) Past Due Accounts?
If so, it’s time to take action. You can do it without being the “bad guy” and without putting your business’s reputation at risk. That’s where Southwest Recovery Services comes to the rescue. We have many years of experience using a combination of legal assertiveness and know how to get debtors to pay businesses and lenders what they’re rightfully owed. Contact us today to get started.