When your business needs to collect money from customers or clients, you have to be careful about what steps you take. Collection activity can be difficult for a small or mid-sized business to handle in-house. They may not have enough demand for collection services to justify having a collections department or even a specific person who specializes in debt collection on staff.
It’s also common for businesses to worry about how collection efforts might damage their reputations. The more aggressive collection agents become, the worse a company might look to the public. Those concerns don’t mean that your business should just give up when someone doesn’t pay what they should. How do you pursue a debt appropriately?
Make sure that you comply with collection law
The nature of your relationship with the person who owes you money and the kind of business that you do will affect what kind of collection activity you can perform. You will want to make sure that you comply with all federal debt collection laws. Limiting when you reach out to a debtor and being careful about the language that you use are important for legal compliance.
Give the other party opportunities to do the right thing
Becoming aggressive about debt collection right away could potentially damage your reputation with the community. Being reasonable by offering people the opportunity to make payment plans or similar arrangements will lessen the negative effects of your collection efforts.
By having policies about accepting reasonable payment plans and keeping records of your attempts to work with the debtor, you can make it clear that your company does not mistreat those who fall behind on payments.
Be willing to take legal steps if you can’t recover another way
There are people who will not start making payments regardless of the number of letters that you send or what color your late notices are. At some point, your options will basically be to either take legal action against the person who acknowledges that they won’t pay or to write that off as bad debt, which will at least reduce your tax obligations.
Deciding to pursue a debt when someone has made it clear they don’t want to pay will usually require the involvement of the civil courts. You can initiate litigation to collect on your debt.
A judge may issue a garnishment or someone’s wages or bank account. It may also be possible for you to place a lien against their personal property to compel them to repay you. Taking the right actions can increase your chances of getting paid without putting your business or its reputation at risk.