Business Owners Need a Plan for Collecting Unpaid Debt
To stay in business, you need to get paid for the services or goods you provide. However, it is inevitable that you will encounter customers who are habitually late with payments or fail to make them at all. To avoid having problems with debt escalate to where they become overwhelming, it’s important to have a plan for collecting debts from the start of any transaction.
Usually, debt collection for small businesses involves collecting money owed from customers and clients. There are many reasons why invoices go unpaid. They might get lost or be misplaced, or they may be put aside until cash flow improves. Customers and clients generally fall into the following three categories:
- Customers who will do whatever it takes to avoid paying
- Customers who have several payments due at once and pay them sporadically
- Customers that normally pay on time but are now unable to do so due to financial trouble.
When it comes to small business debt collection, keep this golden rule in mind: Act quickly and be determined. Acting quickly will ensure that you maintain your right to the money owed, and staying determined can ensure that you get paid in full.
Here are some helpful tips for small business debt collection from all types of customers:
How to Collect Money Owed from Customers
Be Proactive and Set Clear Expectations
Every time you deal with a new customer or client, you should be proactive and set clear expectations about how payment should be made. Discuss your fees, invoicing procedures, payment due dates, and policy for late payments before you begin the work. Make sure this is set down in a written service agreement. Your service agreement should include the description of your fees and payment schedules as well as the services to be performed or goods to be delivered.
Set up a Payment Schedule
Your payment schedule should be based on the type of assignment or work performed. In many situations, it may be best to have an initial down payment, a set schedule of payments as the work progresses, and a final payment when the work is complete. If you are owed money upon completion of the work or after goods are delivered, you should set a due date for getting paid soon after you send an invoice. Avoid letting the amount owed to get too big and become overwhelming to the customer.
Send Bills Regularly
Send your invoices promptly and according to the payment schedule you’ve arranged; clearly state payment due dates. It’s easier to collect a smaller debt than a larger one, so letting the debt accumulate will make it harder to get paid. If you do not receive payment by the due date, send an invoice marked “Past Due” and a polite written reminder with a message that you haven’t received payment. Be polite and professional, and say something like, “Did you over look this payment? It was due 30 days ago – please remit now to avoid late payments.” Save copies of each letter you send.
Don’t Harass Clients and Customers:
Send bills regularly, but do not harass customers. This is a good customer service policy as well as a good legal policy. If your actions can be considered harassing, you may wind up losing a customer as well as facing legal repercussions. Do not threaten debtors or leave more than one message per day.
Send a Debt Collection Letter
This is a formal letter that includes the date that payment was due; provides a time frame for sending payment, the methods of payment you accept. and a statement about the action you’ll take if you don’t receive payment. The statement can either be vague, such as “avoid further action,” or more specific, stating that you will turn the matter over to a collection agency or initiate legal action. Your choice will depend on factors that include the specific situation, your knowledge about the customer, and whether you desire to do business with them again.
An example would be: “This is our final reminder that your account is now one month overdue; late fees will be charged to your account if this payment is not received within three days. Please avoid any further complications or being transferred to collections by making payment or by responding to this letter with your reason for delay and plans to pay.”
Make Personal Contact
Attempt to see the customer in person or reach them by phone. Remind them of your agreement and ask for an explanation as to why your invoice hasn’t been paid. It’s always best if you can come to a resolution together. For example, if you haven’t been paid because the company is experiencing problems with cash flow, you may be able to set up a payment plan or accept partial payment rather than to take more costly actions.
Consider Small Claims Court
Small claims court is a great arena for small businesses, as these courts are designed to eliminate costs of attorneys and other court fees.
Use a Collection Agency
A collection agency uses more forceful methods and often takes a percentage of what they collect as payment.
Speak to a Lawyer and File a Lawsuit
If small claims court is not an option for you, and the amount of money is too great to hand over 50% of it to a collection agency, you may have to file a lawsuit in order to recover the debt. Your lawyer can examine your individual situation and determine the best way to proceed. For example, if your client has filed bankruptcy, your lawyer may be able to help you file a claim with the bankruptcy court for what you are owed. Sometimes just knowing you have an attorney working for you is enough to get your invoices paid without going further.
How to Collect Debt From Customers
Collecting unpaid debts is essential to the success of any business, and a business attorney can help. Texas attorney Andrew Weisblatt is a skilled Houston B2B business collections attorney who understands how to effectively collect from clients and businesses that may be reluctant or unable to pay their outstanding financial obligations. We are available to help you aggressively pursue the debts you are owed.
To schedule an appointment with Mr. Weisblatt, call our Houston office today at 713-666-1981.
Attorney Andrew Weisblatt
Mr. Weisblatt has practiced continuously since becoming licensed in 1992 and has represented businesses ranging in size from one person start-up ventures to multi-national corporations employing hundreds of people in multiple countries. From 2005 through 2009 Mr. Weisblatt was in-house counsel and chief operating officer of a multi-national corporation in the steel products industry. That in-house position provided valuable insight into how businesses work and what they actually need from their lawyers – both in-house and outside counsel. Attorney Bio
