Debt Collection
Effective debt settlement techniques for small businesses
By AMR
As the owner of a small business, you may find you wear many hats - accounts receivable is one of them, and one of the most important aspects of your business. In a perfect world each customer would pay in full, in advance. However, the small business owner sometimes finds that he or she must extend credit or offer payment terms to customers.
Small business owners should have a protocol for handling customers who owe them money. While it is not the most enjoyable aspect of your duties, collecting money due to your business is a vital task. The first step in ensuring that your customers pay is to establish in writing, up front, the payment terms.
Each month, small business owners need to run an AR (accounts receivable) report from their accounting software. This will give exact amounts due, from whom they are due, the date the payment was due, and how far past due the payment is.
Establish a Protocol
Customers who are less than 30 days past due should be contacted via telephone. The telephone contact should be a friendly reminder that the payment is past due, and a means to offer the mailing address of your business. This telephone call may evolve into sending a copy of the original invoice along with the purchase order or even more detailed information.
Customers 30 to 60 days past due should be sent a letter. Small business owners will find many collection letter templates on the Internet that can be customized to their specific business. The first letter should simply be a “Have you forgotten us?” letter. It should include all important information about the debt and remittance information, and should inform the customer of any late charges as well as finance charges accruing on the balance. This letter should stress the consequences of late payments and encourage the customer to pay quickly.
Those who are 60 to 90 days past due should receive a stern letter demanding payment. The letter needs to express the severity of the situation and explain the consequences of forwarding the debt to outside collections. This letter too should contain all pertinent information regarding the balance that is past due.
Customers who have not responded to your previous attempts to collect their outstanding balance after 90 days should receive a final notice letter. This letter should be firm in stating a specific amount of time in which the debt must be paid, and should explain to the customer that after this date their account will be turned over to an outside collection agency and the customer will be responsible for all fees associated with collections.
Collections Agencies
Small business owners may want to consider collection agencies only as a last resort due to the extreme loss associated with turning accounts over. Collection agencies retain a large portion of the balance collected and the small business owner receives mere pennies on the dollar of the balance due them.
To avoid this problem, many business owners require payment in full for services or products when the customer places their order or makes the purchase. Another option to aid in ensuring that customers pay is to subscribe to a credit check service. By checking the credit of your customers, you can see their payment history and make an educated decision regarding extending credit.
