Small businesses balance on a precarious line when attempting to collect debts from their customers. Business owners trying to grow their business certainly don't want to lose customers. If those same customers don't pay their balances on time, or at all, it hurts the business even more because time and resources are already spent. Depending on the type of small business customers, there is a right way and a wrong way to do debt collection.
Here are tips to do small business debt collection the right way.
Debt Collection from Consumers
If your business works with consumers - like renters, patients, or homeowners - debt collection must be done without violating the Fair Debt Collection Practices Act (FDCPA). The FDCPA protects consumers from aggressive debt collection tactics like calling all hours of the day and night or using threats to get paid. If your business is collecting your own debts, you get a little leniency but you should still not attempt to collect under false pretenses or threaten legal action unless you are actually hiring a law firm.
Small businesses may not have the resources to continue debt collection practices in the long haul and may write off the bad debt or hire a debt collection agency. Consumer debt collection companies must also comply with the FDCPA. If not, the agency can be reported to the state attorney general's office or sued in court for violating the federal law.
Business Debt Collection
If your small business works with other businesses, your debt collection needs and tactics will be different. Business debt collection is not currently regulated by the FDCPA but collection from another business can be a lot more complicated than from an individual. For one thing, your small business may have worked hard to create a relationship with the client who isn't paying. Do you really want to get aggressive or threatening if they're late paying their invoice?
When setting up an account with another business, take these proactive actions to prevent late or non-payments:
- Have them sign a contract agreeing to payment terms and consequences for late payments
- Include all pertinent information on invoices such as the due date, who and how to pay
- Establish regular contact with your client and their accounts payable department
- Send friendly reminder as the due date approaches and send follow up collection letters soon after
Small Business Debt Collection Done Right
If your business is collecting debt from another business (also called B2B collections), you may opt to hire a B2B or commercial debt collections agency. A commercial debt collections agency will have experienced collections representatives on staff to carefully handle the negotiations of invoice payments. As a small business, you also have the option of relying on an agency to help keep your accounts receivable clean and up-to-date so that there are less late payments and you have more time to focus elsewhere.
As a last resort, business collection agencies can also help you take a non-paying client to court, if needed. Most of the time, the accounts can be brought up to date with a mere threat of legal action but, if the customer delinquency cannot be resolved, you should have a legal team on your side that already knows the story.
If your small business wants to do debt collections right, there are experienced professional debt collections companies that work with consumer debt (such as our sister company BYL Collections) or business debt (like Enterprise Recovery). Your time and resources can be spent building your business if you work with agencies who honor federal laws and your relationship with your customer.