Doing Your Own Business Collections

Formal business collection procedures should be your last resort if you want to succeed long-term.

But that's not to suggest that you should wait before you start trying to collect.

Sometimes people run into financial obstacles. Your best approach is to first try to solve the matter in the most amicable way possible to preserve the relationship with your client.

But keep in mind that this is also an excellent time to reconsider the value of that client. (!)

Do everything you can to stay on good terms. If all else fails, then you'll have to decide whether the time and effort of hiring a collection agency and/or filing a lawsuit is worth it. Just keep in mind that once you do, there's almost no redeeming the relationship.

The easiest and fastest method of getting paid now

This is one of those "elephant in the living room" facts - you know, the kind that's so blatantly obvious that many people can't see it.

Are you ready? Here it is:

The reason that most slow-paying clients pay slow is because ...

... we don't ask them to pay sooner.

Or to put it another way, getting paid is usually a simple matter of asking.

One tactic often used by slow-paying clients is to schedule payments based on how long you historically wait to ask to be paid.

Some firms keep track of when they started receiving business collection calls. If in the past the vendor waited 60 days, the company scheduled payments for 60 days after getting the invoice. The same type of firm will often wait 90 days if that's how long the vendor waits to ask for payment.

So the best first step in your business collection plan is also the simplest: just ask to be paid! And if you aren't putting payment deadlines on your invoices ... why not? (!)

Send written notices

Start out with a friendly reminder that the bill is overdue. Don't wait too long to start sending business collection notices. Seven days is usually perceived as reasonable by, well, reasonable people.

If your first written prompting doesn't work, follow up a week later with a slightly stronger message. Allow for the possibility that they didn't receive your first letter, and set a new deadline for the payment of no more than ten days.

Hopefully you've built in a late-payment penalty and interest. If not, you may be entitled them by statute (usually applies to debts over 30 days past deadline and may depend upon your business category; check into your state and local laws). A growing bill is a great motivator!

When reason isn't enough

The sad fact is that you have to get tough with some clients. After you've tried calling and sending reminders, the next step may be to send a letter stating that you know and will pursue your legal rights. This often prompts them to pay you faster than they pay other bills.

When it gets to that point, effective business collection letters are the key. Not being paid is an indication of other financial problems. You want to stand out from the crowd. Clients will be more motivated to pay you when they receive a letter that says, "If the debt isn't paid, I will pursue all legal remedies that are at my disposal. If not paid, I will file suit."

This doesn't mean that you have to follow up by filing a lawsuit as the next step. In fact, your best option is to get help from a professional collection agency (your first "legal remedy"). If that fails, a lawsuit may be your ultimate option.

The older a debt gets, the less likely it is to ever be paid. A lot of business owners who get stonewalled go through an unnecessary waiting period before deciding to retain a collection agency (eight months is about average). By then, you'll be lucky to realize even half of the original amount due.

But even a percentage is better than nothing. If you've exhausted your own business collection methods, your next step is to call in the cavalry.

Next: How to Choose a Collection Agency

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