How To Collect A Debt:
Important Decisions To Consider

Many companies are hard pressed to find the extra time, energy and resources required to go about the extensive work needed for debt collection. This is even more important as recent laws affecting how creditors can go after delinquent debtors have been enacted.

Here are some useful tips that answer how to collect a debt:

How To Collect A Debt: In House Debt Collections: Important Steps To Take

Proper Documentation

For instance, this means having a clearly written policy in your customer application or agreement. It should include language about when payment is expected, late fees and any additional charges, such as the cost of collections should the account be turned over to a collection agency.

Have terms fully spelled out in writing to avoid confusion further down the line. If the debtor disputes the validity of the debt later on, you'll need this proof to substantiate the accuracy of the earlier transaction.

How To Collect A Debt: Payment Terms

Also, avoid showing aging buckets on a billing statement. Why?

• It conveys an expectation that the balance is going to age; it shows that you don't really expect to be paid on time.
  
• If you do repeat business with people over and over, it "trains" them to only pay the amount when they reach those little buckets at 60, 90, 120 days, but they never pay the current balance in 30 days on time. You're training them to always make partial payments, and not pay in full and bring their balance to zero.

Implement Written Internal Collection Procedures

Have a documented plan, with policies and procedures in writing for your employees. This will also serve as proper training for new employees. It lets them know you're serious about getting paid and managing your receivables.

Have a systematic plan for following up on past due accounts and stick with it: phone calls or sending out past due notices on a certain date, depending on whether your customers are consumers or other businesses. This is very important, especially as business owners get busy with running their business and don't have the time.

Following up on receivables usually takes a lower priority against other activities. Work those accounts a little each day, instead of getting backlogged and allocating entire days to catching up. By spreading this activity out won't take as much time away from core business functions.

Phone Calls And Letters

How To Collect A Debt: Debt Collection Agencies

If done methodically, you can see some success in your recovery efforts. The more important question you need to ask yourself is whether the time and money costs to your business is worth doing it yourself? You could find that the amount of time, real costs in lost opportunity dollars and other resources allocated to internal debt collection too cost prohibitive. In which case, you might consider outsourcing to outside debt collection agencies.

In matters concerning how to collect a debt, a very important question is when to bring in a third party collection agency?

Of course, this answer varies by industry. But know this:after 90 days, accounts depreciate at a rate of 15% per month. At some point, it becomes a huge resource drain to spend 90% of your a/r staff and resources chasing after 5-10% of your customer base to pursue accounts after 90 days.

When you document this activity (another reason for keeping accurate records, as this shows what's truly going on with your receivables), and you see your efforts are not successful after you've attempted a number of phone calls and letters, you have to remove the emotional attachment you have to these accounts and enlist the help of a neutral third party.

The costs of using a third party, even though it can seem like a high amount, is less expensive than the alternative. The true costs are in lost opportunity dollars, which take you from your core business functions, by spending valuable time, resources and money chasing after these accounts.

These delinquent customers are communicating a serious message by avoiding you....and one you can't afford to keep putting off. If they're not communicating with you, and/or not trying to make payment arrangements, their silence is sending a strong message that you can't afford to ignore. No response IS a response. How to collect a debt also means knowing when to outsource these to a collection agency. This should be part of your internal accounts receivable plan.

Some advantages for outsourcing include, focusing on your business and letting another specialized business handle collections, not to mention less frustration for you. Collection agencies act on your behalf, and they're far more experienced in dealing with debtors and collecting successfully.

When choosing the best collection agency, here's what to look for!

You may also consider hiring a debt collection attorney. While collection agencies typically send demand letters and/or initiate phone calls, attorneys typically have additional legal tools to their advantage, such as filing judgments and/or wage garnishments. It should be noted that attorneys usually cost considerably more than a collection agency.

How you choose to collect your debt is your decision at the end of the day. Its a choice that should be made with costs, time and resources in mind.