Wouldn’t all companies love it if their customers pay debts on time?. You wouldn’t need to spend time chasing debts and you could concentrate on actually running your business. However debtors will most likely be ever present, you can’t escape it.
Businesses can invoice clients early, wait patiently for payment, and be optimistic that payment will someday land at the bank.
But sometimes those polite little reminders, are just not enough to deal with customers who are adamant they are not paying their debts.
So what can you do to ensure your business is paid the money it is owed? How do you collect debts from customers?
Choosing how and when you need to take formal action can be difficult and there are a few informal options at your disposal before thinking legal action. After all, the last thing you want to do is spend time and money going to court for every invoice that is overdue by a few days.
We will to share experiences and tips on how to collect debt from a customer, before establishing your legal position on the debt.
I wrote a previous article on if you should Prioritize paying debts or saving money, check it here
Now, Let’s go!
1. Stay Calm
When you’ve provided services for a client and they don’t pay you on time, your natural inclination is to be infuriated (and you have a right to be upset). But it’s imperative that you take a deep breath and stay calm. The angrier you get, the less likely that you’ll collect on the full debt. The client will feel your wrath, will take it personally, and won’t feel like cooperating (at least not in at timely manner).
Your mental state has a strong impact both on how you handle the debtor and how they respond to you. Treat each call as if it was your first call of a very good day. Put a smile on your face. If you were irritated on the previous call, take a few minutes to calm yourself and start afresh. The debtor will respond to your tone. Your upbeat mood will be contagious and you are likely to get a more positive response from the debtor
2. Know Your Rights
If you don’t have any professional training in accounts receivable or debt collection, then you’re probably blindly fumbling your way through the process of collecting payments. The sooner you educate yourself on your rights and legal options, the better off you’ll be. Not only will you understand the actions that can and can’t be taken, but you’ll also become more confident in your interactions with customers.
3. Document Everything
Few things are as important as documentation in a small business debt collection situation. Should the debt ever lead to a legal battle in court, your ability to point to documentation will be very helpful.
Every time you talk to a client on the phone, record the phone call and take notes. Certify and copy every letter you send in the mail. Save email correspondence. Log visits you make to the client’s office or home. All of this information could prove helpful.
4. Avoid Harassing
There’s nothing helpful about harassing a customer who owes you money. While persistence plays an important role in collecting on a debt, there’s a fine line between checking in and pestering.
Harassing looks like calling a customer every single morning for 60 straight days and screaming at them. Persistence looks like calling every seven to ten days and giving the client some options by which they can start paying off the debt.
5. Offer to Settle for Less
Let’s say a client owes you N100,000 and is 120 days past due. You’ve been trying to collect on this debt for four months and feel pretty sure you’re never going to see the money. Before simply writing the debt off, it’s always a good idea to offer a settlement for less than you’re owed.
While the delinquent payment is stressful to you, rest assured that it’s causing more anxiety for the client. It’s probably keeping them up at night. If you come to them and say you’re willing to take 50,000, they may jump at the chance to get it off their books. And considering that you already counted it as a lost cause, that’s a 50,000 win for you. You’ll never know until you ask!
At the end, if it doesn’t work out, then you can take legal steps.
Debt collection isn’t fun. Sometimes you feel like you’re being a pushover and other times you feel as if you’re being too harsh. The goal should be to walk the line well enough that people take you seriously and pay up when they’re able. You’ll occasionally have to write off bad debt, but follow the aforementioned tips and you’ll have some success.