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.A bad debt can mean a difference between profitability and net losses for small businesses.Sometimes it can be difficult to collect debts for a small business.There are many things you can do to increase your chances of being paid.To find out how to avoid bad debts, read on.
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 provide any services or goods.All document language needs to be clear.Discuss the account with the customer to make sure they are aware of the charges.Both parties need to agree on payment terms.Late payment fees can be used to encourage on-time payments.2% is typical when payments become delinquent.Late fee policies should be included in your payment policy.You might want to ask for half of the payment upfront.You will receive something in exchange for your time and efforts.Researching about collecting interest is important.The collection of interest on debts is regulated by federal and state laws.To avoid debt forfeiture or a fine, always include lawful interest in your payment policy.You can check for usury laws in your state.Legal interest rates and legal practices can be found on your state's attorney general website.
Step 2: You can list the due date on the bill.
Payment is due upon receipt."Net 15 days," "net 30 days" or any other period of time in which you expect someone to pay you can be used.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.There is a bill every 15 to 30 days.The sooner you send out the bill, the quicker you will be paid.
Step 3: Send reminders.
When a payment is past due, immediately send a reminder, noting the amount owed as well as the fact that it is no longer due.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 in 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 and make sure you have relevant contact information, such as address, telephone number and extension number.A mutual desire to fulfill transactions is promoted by engaged business relationships.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.
You have to decide what to do when payments are late.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 those who owe you money.
Step 6: Understand the debtor.
Try to understand why the payment is late.Most debtors 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 to not pay you at all.Try to find out what type of debtor the person is when you speak 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, hopefully, mutually beneficial.Negotiating with a debtor is a process.You should 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: Call the debtor to find out about the account.
The first thing to do after mailing a bill is to call them.Do you have a reason for calling?Don't harass the debtor, just be straightforward.Try to convey a desire to keep a positive relationship by using a civil tone.The consequences can be addressed 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 up the conversation by phone, email or mail.Don't apologize for asking about a debt that is owed to you.Remember that the money is yours.
Step 8: Return in 15 to 30 days.
You will want to remind the debtor that the debt is still outstanding if they haven't already 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 you talk about the debt, you should ask how the person is doing.You need to be clear that there will be consequences.When payment becomes late, you can say: "As we agreed when you signed the contract/payment policy."They should be reminded of the times you have sent out notices.You should get off the phone with them if they are willing to make a payment.Inquire about the reasons for the delayed payment.Understand.If the debtor wants to avoid interest, ask if they want to pay by payment plan.
Step 9: The debtor gets all services and goods.
Payment and company policies should detail the amount of time that needs to pass before this happens.Send a letter of warning to them before they stop service for non-payment.
Step 10: Demand letters can be written.
Past invoices and references to past communication should be included in these letters.If they ignore their bill, the language should reference harsher legal action.You should 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.When a customer sees the collection agency or attorney information on the demand letter, they may decide to pay.Writing a series of letters, making telephone collection calls, and other services are offered by some companies.
Step 11: Negotiating with a 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 less expensive 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 seriously considering 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.
If you suspect your debtor may go bankrupt, you will need legal advice from an attorney.To help your case, you will need to file a proof of claim.Unless the court decides otherwise, you can't collect the debt after the debtor files for bankruptcy.Delayed payment, no communication with you and adverse economic conditions are some of the signs that someone owes you money.
Step 14: You can choose how to collect the debt.
If you want to collect a debt, you can either give it to a collection agency or go to small claims court.A collection agency works for a percentage of the debt payments they receive.Small claims court doesn't require attorney fees and may be a good option with smaller debts.Civil court is only feasible when the amount owed is over $40,000.
Step 15: There is a debt collection service.
If you decide 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 hand the debt over to a collection agency.They do not care about their credit scores or reputation.The legal system may 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 filed against an agency are kept by the Consumer Protection Agency in your state.Before selecting a particular agency, check with them.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.
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.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 you will get from the debtor.
Step 17: The debtor should be taken to the small claims court.
This is a viable option if you are owed less than $5,000.The small claims court was created to avoid excessive legal fees.It means you don't have to pay high court and attorney fees.Even if you are awarded a judgment in small claims court, the defendants can refuse to comply.You can enforce the ruling, but these 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 likely have small fees to pay for paperwork.You can try a mediation.This is done in small claims court.In the case of a dispute about payment amounts, it can help you reach a settlement.You will have to split the cost of a professional mediation with your debtor.Seek to have your case heard in a court of law.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 correctly.The goal is to place the debt on the debtor's credit record as a bad mark.