Receiving money owed to your company by customers is a part of business life. It is difficult to do it while maintaining customer relationships. This article will help you manage your business by reviewing several business debt collection methods.
What is the best time to collect business debt?
Invoices that are not paid can slow down cash flow and decrease inventory turnover. This can damage your company’s credit rating and negatively impact your company’s image. You will be paid more if you act quickly.
This action should be taken before the invoice is unpaid. Send invoices promptly and create an accounting system to flag any outstanding accounts. Even a small oversight in invoicing can lead to big problems when it comes time to pay.
Several other things you should be aware of before you take action:
Are you sure that your invoice has been sent to the correct person at the right address?
Did both the parties sign the contract before delivery? If so, did you specify payment terms in it. These terms were you able to mention in your invoice?
Avoid ignoring overdue invoices for at least 45 days after the due date. The longer the invoice is unpaid, the more difficult it will be to collect.
Most terms require payment within 30 days. If an invoice is not paid within 60 days, it can be considered a bad debt. You will need to resort to commercial debt collection.
Before you hire outside help to collect business debts, here are some things you can do on your own.
How to collect commercial debt yourself
These business debt collection methods are designed to reduce the hassle of collecting late payments and speed up the process.
There are no set rules for business debt collection. The history of each customer and the reasons they are late will determine how you approach them. Remember, customers may not contact you first.
Reach out to your customers
Do-it-yourself is a good option before you launch commercial debt collection. Reach out to your customer and remove the obvious.
Your invoice had a problem: The customer didn’t receive it or it was unclear.
The goods were not delivered to the correct address or they weren’t even delivered.
Customer has an accounting or payment system problem.
If your customer is experiencing cash flow problems, he/she may be willing to follow a repayment plan.
Telephone calls are the best way to collect business debt. You can sell yourself to your customer and ensure that your invoices are prioritized and that you receive your payments on time.
Sending a business debt collection letter
A business debt collection letter is another option that you can use to collect business debt. This allows you to remind your customer that the invoice has not been paid, ask for prompt payment, and inform the customer of the consequences of not paying.
Your letter should be concise and direct. You shouldn’t interrupt customer relations by being polite but firm.
You might decide to take legal action if your attempts to settle the matter with your customer by using your own resources (the telephone call, the letter for business debt collection) fail. If the amount owed to you is too small for collecting to be worthwhile, then you may consider leaving.
Do you have to pay the invoice in full?
Collection of business debt involves more than just collecting the money. It also includes customer relations, and the effort and time you spend on the collection.
Sometimes, it is better to write off small amounts in order to maintain a business relationship. Consider whether it is worth trying to collect EUR500 when it will cost you more.
If you are chasing a higher amount from a customer who is loyal, it may be in your best interest to write off late payment penalties if you wish to keep good relationships with them.
If none of these options work, it is time to look into other methods for collecting business debts such as outside assistance.
What are your options for business debt collection outside of the company?
If they are unable to collect an invoice within 60 days, many businesses seek outside assistance, such as a business debt collection agency.
What is the work of a debt collection agency for businesses?
These agencies are set up to collect commercial debts for a variety of creditors. They specialize in collecting full amounts from debtors while trying to avoid litigation. The majority of cases, the business debt collection agency doesn’t own the debt. Your company still controls the amount owed to your customer. The agency acts as a middleman between your business and your customer, collecting a portion of the collected amount.
Agencies may also charge for their services in different ways. For example, a flat fee per collection, or by the amount of time spent collecting. Before you hire a debt collection agency, be sure to understand these terms.
The majority of agencies use letters and phone calls.
They contact the customer and ask for payment in full. Sometimes, a letter or phone call from a business debt collection agent to your customer will prompt payment.
If full payment is not possible, the agency for business debt collection will negotiate a payment plan that you approve.
The agency may take legal action against the debtor if payment is not made within 180 days.
A debtor should not be sued. If a judgment is not properly executed, it can be costly, time-consuming and often pointless. In most countries, there are many laws that govern debt collection practices.
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