Over 50% of new businesses fail within the first five years and small businesses rely on a healthy flow of income to remain in business.There is a difference between profitability and net losses for small businesses.It can be difficult for a small business to collect debts.There are many things you can do to increase your chances of being paid.Read on to learn how to avoid bad debts.
Step 1: A payment policy can be developed.
Contract with your customer so they understand what they are responsible for paying and when, before you give them any services or goods.Make sure the document language is clear.Discuss the account with the customer to make sure they are aware of any charges.Both parties have to agree on payment terms.Late payment fees can encourage on-time payments.When payments become delinquent, you can charge a percentage of the bill.Late fee policies should be included in your payment policy.It is possible to ask for 50% of the payment upfront.You will receive something in exchange for your time and effort.Researching about collecting interest is important.The collection of interest on debts is regulated by federal and state laws.Always include lawful interest in your payment policy to avoid debt forfeiture or a fine.You can check for usury laws in your state.Legal interest rates and legal practices in your state can be found on the attorney general website.
Step 2: The due date is listed on every bill.
Payment is due upon receipt.You can use "net 30 days" or any other period of time in which you expect someone to pay.If you place a due date on a bill, it will be included in a current or upcoming billing cycle.If bills are tight, the business or individual may wait a month or two before paying if you don't put a due date on the bill.You don't have to wait 30 days after the delivery of the product to send out a bill.Bill is done every 15 to 30 days.The sooner you send out the bill, the quicker you will be paid.
Step 3: Reminder bills should be sent.
When a payment is past due, immediately send a reminder, noting the amount owed as well as the fact that it is not due anymore.Many customers forget a bill hasn't been paid because they are busy.As soon as they realize the payment is past due, they will pay it.All contact with the debtor should be kept on a record.In case of legal action, you will need the dates and times of your calls, letters and other communication.When you contact the debtor, you may need to address this information.
Step 4: Keep in touch with your company or customer.
Check in with your business contacts regularly if you have relevant contact information, such as address, telephone number and extension number.Business relationships help fulfill transactions.The person who makes financial decisions in a business or the person responsible for the account should address each bill.If you don't have a contact for a business transaction, you can call the front desk and be connected to Accounts Payable.
Step 5: There is a procedure for dealing with debts.
When payments are late, you have to decide what to do.If the customer or business is late with a payment, you should first send out a reminder, then call them, try to negotiate, and then take the debt to collections if it isn't paid in full.Everyone in your company should know how to get in touch with people who owe you money.
Step 6: Understand the debtor.
Try to find out why the payment is late.They fall into one of three categories, either they want to pay but can't do it on time because of difficulties with finances, they habitually delay payments as long as possible due to priorities for the month, or they have decided not to payment you at all.Try to find out what type of debtor the person is by talking to them.If non-payment has to do with finances, priorities or actual avoidance, you can come up with a solution for both parties that is mutually beneficial.Negotiating with a debtor is a process.Listen to the customer and offer solutions that will appeal to them.This will make it more likely that you will achieve a win-win situation.A business with financial trouble may not want to talk about their failure.If the business is in financial trouble, you could offer them a settlement amount instead of trying to get the full payment.
Step 7: The debtor should be contacted about the account.
Contacting them by phone is the first step after mailing a bill.Do you have a reason for calling?Don't bother the debtor, just be straightforward.Try to convey a desire to keep a positive relationship by using a civil tone.There are consequences further down the line.The person should be able to tell you if they received your invoice.If you want to discuss the late payment, try: "I am concerned because your payment is now (insert how many days) late."Can I help you make this payment and minimize consequences?If they want to discuss why the payment has been late, you can ask if there is a reason.Get a verbal agreement that the invoice will be paid.You can follow the conversation by phone, email or mail.Don't apologize for asking about a debt.You should remember that the money is yours.
Step 8: You can call back in 15 to 30 days.
You will want to remind the debtor that the debt is still outstanding if they haven't yet paid it.The debt is likely to be around 60 days late.The longer the payment is delayed, the less likely you will be paid.Before talking about the debt, you should ask how the person is doing.You need to be clear that consequences are on the way.When payment becomes late, you can say "as we agreed when you signed the contract/payment policy."You should remind them of the times you sent out notices.You should get off the phone with them if they are willing to make a payment.Inquire about why payment is delayed.Be aware.If the debtor wants to avoid interest, ask if they want to pay by payment plan.
Step 9: The debtor gets services and goods.
Payment and company policies should detail the amount of time that needs to pass before this happens.Send a warning letter to them before they stop service for non-payment.
Step 10: Write letters.
Past invoices and references should be included in these letters.If they ignore their bill, the language should refer to harsher legal action.It's important to include a date that they must take action by to avoid further consequences.For a small fee, you can work with an attorney or collection agency to make your letters more persuasive.Sometimes a customer will pay when they see information on the demand letter.Writing a series of letters is one of the services that some companies offer.
Step 11: Negotiating with the debtor.
Negotiating may be the only way to get paid for your services or goods.Depending on the situation, ask what they can pay or give a discount.It can be expensive to pursue payment after this step, so it may be worth it to accept whatever the debtor can pay.If you know the business or customer is avoiding payment, it may be cheaper to give a discount and never deal with them again than to hire a collections agency or lawyer.
Step 12: A "pre-collect notice" should be sent to the debtor.
The letter is usually sent by a collection agency to let your debtor know that you are serious about turning the debt over.The date by which the debtor has to respond should be stated.Sometimes a debtor will respond when they realize that this may be their last chance to deal with you.
Step 13: Be aware of your finances.
You will need legal advice if you suspect your debtor will go bankrupt.You will need to file a proof of claim in order to help your case.Unless the court decides otherwise, you can't take action to collect the debt after the debtor files.Delayed payment, no communication with you, and adverse economic conditions are some of the signs that someone owes you money.
Step 14: Pick how to collect the debt.
If you want to collect a debt, you can either give the debt to a collection agency or go to small claims court.A collection agency usually works for 50% of the debt payments they receive.Attorney fees are not required for small claims court and may be a good option with smaller debts.Civil court is only feasible when the amount owed is more than $40,000.
Step 15: There is a debt collection service.
If you choose to give the debt to a collection agency, you need to know how to choose the best one.You should always research your options.Call the collection agencies to find out if they can collect the money you owe.Some people and businesses won't be concerned when you give the debt to a collection agency.They do not care about their credit scores or reputation.The legal system might be a better option.Make sure the agency you choose is licensed and insured.The Fair Debt Collection Practices Act is a state law for debt collection.If you do business with an agency that is not compliant, it can make you look bad.Records of grievances against an agency are kept by the Consumer Protection Agency in your state.Before selecting an agency, check with them.You can check your state's attorney general website to see if there are any consumer complaints, investigations, or rulings against a specific business.
Step 16: The debt needs to be turned over.
You have decided that the money you are owed is large enough to be pursued.The cost of an agency is lower if you ignore the debt or write it off as bad debt when you do your taxes.You have picked an agency and sold the debt to them.All previous correspondence should be given to the agency.You will not receive the full debt, but you and the agency can agree on a percentage of the debt that will be paid by the debtor.
Step 17: The debtor should be taken to the small claims court.
This is a viable option if you are owed a small amount.The small claims court was created to avoid excessive legal fees.You can get some of the funds owed without having to pay high court and attorney fees.Even if you are awarded a judgment in small claims court, the defendants can still refuse to comply.You have options to enforce the ruling, but they will take up more of your time and money.It cannot be appealed after a case has been filed in small claims court.To file a small claims action, you will need to do paperwork and make sure the debtor is served.You will have a court date where your case will be decided, and you will probably have small fees to pay for paperwork.You can try a mediation.This is done as part of small claims court.It can help you reach a settlement in a dispute about payment amounts.It is necessary to split the cost of a professional mediation with your debtor.Seek to have your case heard.An impartial party rules on a case.The decision is final if both sides agree to the process.The debtor should be reported to the credit bureau.You can bring in an attorney to make sure the paperwork is done right.The goal is to make the debt bad on the debtor's credit record.