How to collect debts from small businesses

Content

Steps
Method 1 of 3: How to Avoid Bad Debt
Method 2 of 3: debt collection
Method 3 of 3: how to choose the debt collection path
Warnings
What do you need

Small business solvency depends on healthy profit streams, especially since the US Small Business Administration released a report that said over 50 percent of young businesses close in their first 5 years. Accounts receivable are often referred to as "Accounts Receivable" in accounting terminology. In tax ledgers, the list of accounts receivable consists of payments due to be paid by the business. For small businesses, bad debt can mean the difference between profitability and total loss. There are several things you can do before invoicing to increase your chances of receiving your money. Also, you must follow the protocols if the debt is not repaid for an extended period of time. Debt collection can be a difficult and sometimes controversial process. Read on to find out how to collect small business debt.

Steps

Method 1 of 3: How to Avoid Bad Debt

1 Include the proper due date on every invoice you send. Many invoices indicate the following: "Urgent payment upon receipt." You can also use Pay In 15 Days, Pay In 30 Days, or any other period during which you expect payment to be made.
- Specifying an urgent due date often helps plan a payment in an individual's or business's billing cycle. If you do not include an urgent payment date on your invoice, the business may decide to wait a month or two before making a payment, especially during an extremely busy period.
2 Do not wait 30 days from the date of service or delivery of goods before submitting an invoice. Submit an invoice between 15 and 30 days. The best you can do is get on the schedule and line of sight of the company that owes you money.
3 Keep in touch with each company. If possible, address each bill to the people in charge of financial affairs, and make sure you have their phone numbers and extension numbers.
4 Create a debt collection procedure. This procedure should be known to the entire company so that the person who will talk to the debtor understands what he needs to ask or what needs to be done. Determine at what point action should be taken, what action should be taken, and what course of action the company should follow once it is determined that the debtor is avoiding payment.

Method 2 of 3: debt collection

1 Call the debtor to discuss the debt. Introduce yourself and the reason you are calling. Tell the debtor when the payment was due and ask when he plans to make the payment.
- There is no need to shame the debtor. Be business specific. Always be polite and try to communicate your desire to continue your positive collaboration. You can talk about the consequences later during your conversation.
2 Call again in 15-30 days if there was no receipt of funds from the debtor. Specify the reasons why the payment was not made. Ask if the debtor plans to follow a payment plan to avoid accruing interest.
- Most debtors fall into two categories: either they are in financial difficulty and cannot make payments at the moment, or they are juggling payments from month to month according to priority. Try to get to the bottom of the reason for non-payment, without judging or getting personal, so that you can come to a mutual solution that is satisfactory for each of the parties. However, a business that is in a financial hole may not want to discuss its possible bankruptcy.
3 Stop providing the services the debtor receives. The amount of time that must elapse before such measures are put into effect should be determined by your company policy. Call them and send a written warning notice before discontinuing services for non-payment.
4 Explore the topic of the possibility of calculating interest on the amount owed in your state. Most laws in existence today limit the amount of interest you can charge on the amount owed; however, most are also regulated by the state. Start accruing interest when it is legally possible.
5 Keep all correspondence and information about conversations with the debtor. You will need the dates and times of phone calls, letters, and other correspondence if the case is brought to court. You may also need to refer to the letters in your conversation with the debtor to tell you exactly how much the debt is overdue.
6 Make a compromise if you feel like this is your only chance to get your money back. Ask about the amount they can pay you or offer them a discount, depending on the situation. If you know for sure that the business is evading payments, perhaps by making a discount to the debtor and refusing to further cooperation with him, you will avoid the costs of paying for the services of collection agencies or a lawyer.
7 Write a letter of demand. The letter should contain information about the invoice and previous invoices, as well as all past correspondence.Although the letter should not contain overt threats, the tone of the letter should indicate that if the demand is ignored, severe measures will be taken against the debtor to collect the debt.
8 Send a notification letter to the debtor before referring the case to the collection agency. It should contain the options available to the debtor and the time frame in which a response should be received.
9 Look out for possible bankruptcy news. In case of bankruptcy of the debtor, you cannot send letters to the address of the company regarding the existing debt. You can write a legal letter expressing your claim for payment, but the debtor cannot make payment until the repayment terms are determined by federal court.

Method 3 of 3: how to choose the debt collection path

1 Transfer the debt to a professional service. This method can only be acceptable in the case of a large debt, and if you decide that it would be cheaper for you to hire an agency or a lawyer than to ignore the debt and indicate it in bad debt in your tax reports. Here are some other examples of what small businesses can do to raise their money:
- Transfer the debt to the collection agency. Submit copies of all correspondence to a trusted agency. Be aware that you will not receive your full debt. Most agencies only return about 50 percent of the money raised.
- Take your case to small claims court if your debt is limited to a modest amount, $ 5,000 or less. This type of courts was created to avoid too many fees, for the sake of a relatively small, contested amount. You will need to tinker with paperwork in order to file an application with the court, and you will need to make sure that the debtor is notified. You will be notified of your hearing date and you may have to pay a small paperwork fee.
- Try to settle the issue with an out-of-court settlement. It is very common in small claims courts. Such mediation may be necessary if the parties cannot determine the amount owed, and it can also help in the pre-trial settlement of the dispute. You will need to share the costs of the professional mediator with the debtor among you.
- Go to the arbitration court. An arbitrator is an impartial person who will understand your case. If both parties agree to refer the case to the arbitral tribunal, its decision will be final.
- Report the debtor to your state's credit agency. You can bring in a lawyer to make sure all paperwork is done correctly. The goal is to put the debt information on the debtor's credit report.

Warnings

Please be aware that any falsification of information, such as the name of the company or the type of business, is illegal in the debt collection process. Review your state's debt collection guidelines.