Debt Collection: What You Need to Know
Collecting outstanding debt from your customers is an unglamorous but important part of running a successful business. If you have customers with payments that are past due, this section will outline when going after a debt is a good idea, how you can go about it and what practices should be avoided.
When Debt Happens
Many business owners make the strategic choice to extend credit to their customers. This means that the customer receives goods or services in exchange for a promise to pay for them later. Many times, customers are true to their word and there is never a problem. Other times, the customer fails to make a payment and the business owner is left with a hard choice. He or she will have to decide whether trying to collect on the debt is a good business decision that is worth the time and effort.
Improving Your Chances of Getting Paid
When you decided to extend credit, the customer should have received a written copy of your payment policy. Staying in direct communication with your client is a good way to remind them of the terms they agreed to and get them to make payments. Whether it is by phone, email, regular mail or in person, consistent reminders may be all you need to get a customer to make good on their debt. If friendly reminders fail to do the job, sending a final demand for payment in writing to the customer is advisable before contacting a collection agency or attorney as it will bolster your case.
Examining Your Options
As a business owner, you have many choices of how to go about trying to collect a debt. Effective communication skills go a long way, and it may be helpful to simply contact the customer directly and request payment. If the customer is merely forgetful or is going through a temporary rough patch, he or she will likely appreciate your understanding and flexibility, which may lead to retaining loyal customers.
If that does not work, you have the choice of taking the matter to small claims court if the amount is low enough, or filing a lawsuit. If you are successful in court, a judgment that can be enforced against the debtor may be issued. Finally, you have the option of transferring the debtor’s account to a collection agency.
Bankruptcy and Debt Collection
In some circumstances, you may not be the only one seeking payment from a particular customer. If the customer has many outstanding debts that cannot be paid, he or she may opt to file for bankruptcy. In that case, you will want to weigh whether or not the time and expense of participating in the bankruptcy process is worth it compared to how much the customer owes you. If you decide to proceed, you will need to file a proof of claim and attend the debtor’s bankruptcy hearing. While you may ultimately get a payment, it may not be for the full amount that you are owed.
The Fair Debt Collection Practices Act
Customers have certain protections under the Fair Debt Collection Practices Act. The Act ensures that consumers are treated fairly, and it prohibits certain practices when debts are collected. Debt collectors cannot make false statements or harass debtors by contacting them repeatedly. It is important to note that the Act only applies to anyone who regularly collects debts. Therefore, it would not apply to you as a business owner trying to collect money that is owed to you, but it would apply to any collection agency or attorney that you hire.
Deciding to Let It Go
Although it may not be easy, there will be certain times when pursuing the debt simply does not make sense from a business standpoint. The time and effort it would take to pursue the debt may not be worth the effort when compared to the amount that is outstanding. In addition, if you choose to hire a collection agency or attorney, there will be hefty fees involved, and those fees will hurt your bottom line. Even if you are successful in getting a judgment against the customer, you may never receive the entire amount owed. Therefore, as a business owner you will have to thoroughly evaluate each case and decide if taking action to collect the debt is ultimately beneficial for your business.
While collecting on debts owed by your customers can be challenging, you have many options to consider when deciding if and how to pursue unpaid sums. With a little bit of research and a lot of perseverance, you can successfully navigate the field of debt collection.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.