When into business, you’re bound to have some customers or even other companies fail to pay their invoices on time. It might be forgetfulness or financial hardship preventing them from paying. In such circumstances, a commercial debt collection agency can help you with all your debt-related concerns. Besides, getting severely impacted on your daily operations or cash flow can take up valuable time. Therefore, chasing down the late payment can be a significant issue.
In this blog, we’ll focus on different debt collection methods for small businesses.
Small business debt collection
You have a contract that outlines the payment terms of your agreement. But, unfortunately, they’re well past the due date for payment, so how do you get what’s owed?
Business debt collection runs several collection processes. This can range from a friendly reminder to working out a legal way. Moreover, how debt is collected must be based on how long the overdue debt has been there. It also matters how long the overdue debt has been there and what type of customers you’re dealing with.
Commercial debt collection service includes practices such as:
- Reminder emails
- Phone calls
- Demand letters
- Bad debt negotiation
- Filing with small claims court
- Filing a lawsuit
In order to understand which action to take, you need to know the customer. Different debt collection laws apply to different debtors. A firm reminder or demand letter will be the best option here. If that doesn’t work, the agents will send their debt to a collection agency.
For those customers who are typically on time, you can send a lighter touch. They may have come across financial issues that affected their ability to keep up with the payments.
When to hire a debt collection agency?
Hiring a commercial debt collection agency may not be an easy choice. However, it saves the hassle of chasing down individual customers. As a general practice, most business owners send the debt to collection agencies after it reaches 90-120 days past due.
But, remember, the time frame isn’t the only factor here. When looking to collect, you must focus on red flags. While you want to provide several chances for the debtors to resolve payment issues, you must forward demand letters if all those attempts fail to work.
How do collection agencies function?
Debt collections for small businesses don’t typically work on a subscription basis. Moreover, most of these firms work on a contingency business model. As a result, you need to take a portion of the consumer debt they collect for you. A debt collection agency may charge from 20% to 50% of the debt they recover.
Remember, getting something back is better than nothing. With the business debt collection, they’ll need to get all the information available about each debtor you have an unpaid invoice.
The collection agency acts as an extension of the business. Moreover, the debt collector may negotiate with the customer to pay a smaller amount than what they owe. This is usually the case when it comes to older debts.
Collection specialists will abide by the Fair Debt Collection Practices Act (FDCPA). This prohibits small business owners, debt collectors, and employees from running unfair tactics, especially when collecting on a past due account.
Final Wrap
It’s rare to find a commercial debt collection agency with fixed costs. The ones that do are usually for accounts less than 90 days past due. Most business debt collectors charge a contingency fee. As with any service provider, you’ll want to focus on the quality behind it. Go for the best option without sacrificing customer service.
