When Small Businesses Need to Collect on Outstanding Debts

When the economy is in the current shape it is, it behooves small businesses to make sure they’re collecting on any outstanding customer debts. That being said, what are the best ways to go about doing that?

For too many small businesses, the collections process becomes tiresome and too much of an effort, leading to bills going unpaid. If your small business has found itself in this situation, there is time to turn things around.

It is important for small business owners to keep in mind that not all customers purposely plan on not paying their bills. Some customers run into financial issues, be it a job layoff or major medical illness, therefore putting their bill to you lower on the importance list.

How to Tackle Collection Issues

If your small business is having trouble with a few or more customers when it comes to collecting payments, there are essentially two options to look at – going after them on your own or hiring a collection agency.

For those business owners looking to keep the process in-house, you will save money, but remember, more of your time (staff) will be delegated to going after those individuals who have not yet paid. Do you really have the manpower and the time required to be placing calls, sending out notices etc.?

On the other hand, you can hire a collection agency, which is trained for just such matters. Yes, there will be a fee involved, but you in turn get qualified professionals who will allow you to focus on the business at hand and not running down customers who still owe you.

So, which option is better?

The Collection Agency Approach

If you have the money to spend, working through a collection agency will save you and your staff time and headaches, just be sure to choose the right one. Another important factor before you go down this road is making sure the outstanding amount exceeds a certain dollar figure.

In looking for a collection agency, keep these items in mind:

• Search for a collection agency that is comfortable and knowledgeable in working with a business your size. Experience is obviously very important; you don’t want an agency that is not familiar with your line of work, processes and so on;
• If at all possible, get some references from other small businesses you are familiar with on the debt collection agencies you are considering. The agency you work with should have a good reputation and prove it gets results. If you hire the wrong agency, your money is essentially being tossed out the window;
• In relation to getting references on the different agencies you’re considering, make sure the agency you end up hiring abides with the Fair Debt Collection Practices Act. The last thing your company needs is an agency that is harassing customers into paying both you and the debt collector;
• Make sure the collection agency you work with can prove it has errors and omissions insurance, which protects both you and the collection agency should the debtor want to sue for unwarranted efforts to collect;
• Lastly, shop around and don’t settle on the very first agency you come in contact with. Remember, to check on the company’s past success ratio, along with deciding on a set or contingency fee.

Keeping Collections In-House

In the event your company decides to keep the collection process in-house, there are some rules you should consider following, including:

• Remember that the individual or business you are attempting to collect from is still considered a customer, so treat them with the respect normally given to your customers;
• Train those employees who will be doing debt collection on how to treat customers. The last thing you want is an employee getting in a shouting match with a customer over the phone. This also important in that you do not want to put undue stress on the employee/s doing the debt collection;
• As you start the collection process, begin with a friendly reminder notice in the event the account is 30 days past due. In some instances, customers overlook bills, and/or have others that need their attention first, etc. If nothing is accomplished with the first notice, send another one out within another month’s time. In the event nothing is accomplished after two months, provide the customer with one more warning before considering turning it over to a collection agency.

Debt collection is never a fun process, but it proves a very important one for small businesses, especially when the economy is struggling to say the least.

So, how does your small business handle this tricky process?

About the Author: Dave Thomas writes extensively for www.business.com an online resource destination for businesses of all sizes to research, find, and compare the products and services they need to run their businesses.

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