How To Collect A Debt: 3 Most Important Rules

When faced with the burden of debt collection from late-paying customers, the question your business is confronted with again and again is how to go about successfully collecting debt? Since all businesses have to face accounts receivable and cash flow problems, the answer to this needs to be dealt with sooner than later.

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.

Below are 3 important tips that address how to collect a debt:

1. Have Clear Internal Debt Collection Policies

As the owner of your business, you are the most familiar, both with your customers, and how unpaid debts negatively affect your business. Because of that unique customer relationship, it is a good idea to think about the debt recovery process at the beginning of that relationship, before a problem arises.

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.

In many states, the cost of debt collection can be passed onto the debtor, but only if it is included and stated in the original customer application or agreement. Be sure to check with your local attorney. In order to be legal, this language has to be included in the original signed customer agreement. Again, seek the counsel of your attorney about this.

At the same time, it is imperative to also have consistent and clear internal collection procedures. Whoever in your organization is responsible for collections need to know when statements, reminder letters, and phone calls need to be made. These need to be adhered to in order to be successful.

2. Know When It Is Better To Outsource To Collection Agencies

If handled consistently, you can reap some success in your debt recovery efforts. The question you need to ask yourself is are your internal net results worth the costs in time, labor and money? At the end of the day, is it worth doing yourself? You may be better served to consider outsourcing to an outside collection agency.

Advantages for outsourcing your debt collections include focusing on the core, money-making functions of your business, while letting a more efficient and experienced specialty organization handle debt collecting for you. Collection agencies act on your behalf, and they’re better suited to deal with debtors and are more successful.

3. Consider Hiring A Collections Attorney

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

David P. Montana has been a noted industry expert, business consultant and author in commercial collection agency services for three decades. He provides more tools and information on collecting a debt.