No matter how big or small your company is, you’ll always run into clients who are having trouble meeting their financial obligations. For a variety of reasons, they can pay your company late or possibly not at all.
It is strongly advised that businesses develop an internal debt collection strategy before turning to third-party debt collection agencies. This strategy enables your company to carry out appropriate due diligence and attempt an internal fix.
Before accounts are turned over to a debt collection agency, there are a number of ways to get customers to pay. Even if this might be useful, it’s important to keep a few things in mind.
Check out our pros and cons of various methods of debt collection.
Follow-up collection calls from you or your staff
Any size of business should always make follow-up calls on past-due bills. A polite and professional phone call from your business establishes a direct line of communication with your customer. If you can strike up a dialogue with your client, you might learn why your bill hasn’t been paid. This could be due to monetary issues or issues with the service your consumer received. If the consumer is not happy with what they received from your company, your team can find out why and start the process of making things right.
Drawback: Although follow-up calls are required in debt recovery, they become time-consuming for both you and your team when they are not yielding the desired results.
Email and text reminders for overdue invoices
It is becoming more and more common to use email and even text messaging to contact clients who haven’t paid you yet. Emailing and messaging clients to remind them of a past due payment or other reasons is becoming more effective as more people connect through these channels and fewer people pick up their phones. These may take less time from your personnel and perhaps be automated, depending on the platforms you utilize. Even a direct payment link might be provided. Hiring a third-party debt collection agency is the best choice when trying to collect past dues from customers.
Drawbacks: As you can expect, it’s quite simple for customers to disregard emails and text messages. They have the option to prohibit these communications in addition to deleting them. Additionally, you must educate yourself on the legalities of email communication.
Payment plans to get your customers back on track
Payment plans can be an excellent tool for helping your clients catch up on their debts to your business. If your company is adaptable, you might work with your client to establish an installment plan. This demonstrates your respect for the bond you have established with
them and your ability to act diplomatically under pressure. Additionally, payment plans provide your company with much-needed financial flow, as opposed to receiving nothing.
Drawback: Without written enforcement, customers might not always uphold their end of the bargain. If you don’t have previous authorization, such as a credit card, your customer can default. Of course, collecting the entire debt will take longer.
Small claims court
Small claims court may be another alternative in many circumstances. Including a one-time client debt. A judgment in small claims court gives you a court-recognized legal document that shows your client owes you money. In the majority of states, there is a relatively low filing fee, and you won’t need to hire an attorney, which could reduce your profits. If you don’t constantly need to recover debts, small claims court may be an option. In this case, hiring a third-party debt collection agency is beneficial.
Cons: You might obtain a judgment in small claims court, but it is your responsibility to have it enforced. Yes, it is a court-issued judgment, but businesses frequently find it difficult to have rulings upheld. Going to court can take time, and there is no assurance that your company will receive a favorable ruling.
Hiring a debt collection agency increases your chances of getting paid.
Hiring a debt collection agency has both benefits and drawbacks, but doing so gives you the best chance of getting your clients to pay their debts on time and increases your cash flow. You can protect internal resources like those time-consuming follow-up calls by working with a collection agency.
A debt collection agency will also place a strong emphasis on compliance and take great care to abide by all applicable laws, including local, state, and federal laws. That covers all correspondence, including any phone calls and potential email and text message use.
It can take a lot of effort to work out a payment schedule with your consumers; this is where a debt collection agency can really help out your business. They could take the time to talk with your consumer and come up with a strategy to get paid back.
When a professional debt collector contacts your customer, you frequently receive payment considerably faster because of the urgency that a financial debt collection agency provides. Cash flow equates to urgency.
A skilled debt collector can assist you in maintaining the bond you have developed with a client by resolving a legal disagreement.
The drawbacks: Your clients may occasionally be outraged by being sent to collections. Although it frequently happens that clients return to a business after collection activity, there will be some instances where your clients will shop somewhere else. It’s crucial to clarify your payment procedures and expectations with customers up front for this reason.
Whatever the advantages and disadvantages, keep in mind that you are owed this money and that you have the right to pursue collection efforts.