Being a small business owner is a rewarding endeavor but it does come with a mountain of challenges. Often, some of those challenges come when it’s time to get paid. Collecting on debt is an important and vital part of any business. It might not be glamours and can even be a little uncomfortable, but the dangers of not collecting on debt owed is much greater than a few tough conversations, pink letters, or bringing in a collection agency.
Not Paid In Full
Time is the most important factor when collecting debt. The sooner the collection process starts the better the odds are that you’ll be paid the full amount owed. After just a few months of non-payment, you’ll collect only about 73 cents on the dollar according to debt collection statistics. Go unpaid for 6 months and chances are you’ll only collect half of the original debt. Time is of the essence.
Landing a customer takes time and money. Losing one to late payments is a danger, but one you can hopefully avoid. Before escalating the debt to a collection agency, send reminders and communicate with the customer effectively. Let them know the end result, but because you value them as a customer things should be worked out sooner rather than later. By communicating effectively and working with the customer as they deal with their rough patch, you may end up with a valuable customer for many more years.
Cash Flow and Projections
Business revenue is calculated many months in advanced based on projections. That projected cash flow is often already allocated to other places to help your company grow. When customers don’t pay their bills this effects the entire way the business runs.
Being Too Nice
When a customer is having problems paying their bills they will often prioritize which ones are more important to pay than others. If they know your business is not aggressive in following up on late payments and doesn’t like sending people to collections, then they will not put you at the top of the priority list. Don’t fall into the trap of being the nice company. Business is business, be assertive and get paid.
Not Being Paid Ever
Collecting debt as quickly as possible is the best way avoid habits of late payments and non-payment. If not followed up on, debt can sit there and even fall off credit reports (after about 6 years depending on your state) and you’ll be unable to collect once past the Statute of Limitations. If a customer knows about this debt law then the best course of action is a collection agency. You won’t receive full payment of the debt, but something is always better than nothing.
A collection agency offers a business owner many advantages when it comes to collecting debt. It takes the entire debt collection process our of your busy hands and lets you and your team focus on running the business. Let professional collectors handle this delicate process and you’ll avoid falling into the above debt collecting dangers.