As a business owner, you should develop a proactive approach to collecting accounts so that you know which steps to take in the inevitable event that a customer fails to pay a debt on time. Being knowledgeable and well prepared for the occurrence saves time and frustration and might be instrumental in preserving customer relations. Stick to a checklist to ease the process and complete all the necessary (and legal) steps.
1. Only Accept Cash or Credit Cards
To diffuse a potentially bad situation before it even occurs, make it so that customers can only pay in either cash or with a credit card. With both you get immediate payment and instantly know you’ve been paid in full. With a check, there’s a chance it could bounce and do so a few days after the customer has already “paid for” your product or service.
2. Offer Discounts for Early Payments
Another preventative measure you can take to settle accounts is to offer discounts for customers who pay in 10 days instead of 30 or more. Let customers know that late payments will result in penalties such as late fees and interest charges. Before you enact this policy, you’ll first want to consult a reputable and experienced attorney to make sure your policy falls well within state and federal laws. You might also want to touch base with the attorney every year in case laws change from year to year.
3. Have a Process in Place
It’s also best that you create an internal process for how you’ll collect outstanding customer debts. Specifically, you’ll need to decide when to take action and the type of action to take. This is another time when it’s a good idea to ensure your policy is legal and in compliance with the law.
4. Include All Necessary Information in Contracts and Agreements
One reason a customer may fail to pay his or her debt on time is because your agreements and/or contracts don’t contain the necessary details. Look over your contracts and agreements to see that they mention you’re allowed to charge interest on overdue accounts and that you’re able to recover attorney’s fees and collection costs in the event accounts aren’t paid on time. While there’s a very good chance the customer won’t read every single word of an agreement, he or she can’t say the information wasn’t available at the time of purchase.
5. Send Reminders
Some people are simply absentminded, and they may simply forget they owe you money. Send gentle letters reminding a customer of an overdue or upcoming payment. Such notes are usually the best option for small debts and times when talking with the person is unlikely to resolve the issue. Send a reminder a week or two before the payment is due so the person can start gathering the money. Once the due date passes, your next letter should still be friendly, but make it clear there will be consequences if the customer doesn’t make arrangements to pay the overdue amount. The third letter should be more forceful and state you will turn the account over to a collection agency if it’s not settled in a timely manner.
6. Turn to a Collection Agency
As a last resort, you may have no choice but to turn the unpaid debt over to a collection agency. Know that this is a service you’ll have to pay for. You can also look into small claims court or filing a lawsuit if the amount owed is a substantial one.
Having a process and strategy in place is always a good idea when collecting outstanding debts. Give your customers the chance to work with you, but make it clear that more extreme measures aren’t something you’ll rule out.
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.