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A Dozen Tips for Debt Collection

When you landed that large account six months ago, your company celebrated. You worked hand-in-hand with the client, delivered the product, then mailed the invoice. Thirty days passed without payment. Then 60 days, then 90. The burden of a delinquent debt has turned your dream account into a nightmare.

Debt management is critical to the success of any company. Yet many independent businesses struggle to find the time, energy and resources to collect outstanding debt. Here are 12 tips to help you receive payment on time and improve your cash flow:

  1. Draft a clearly written payment policy to prevent problems. Have customers sign the agreement, which states when payment is due and what late fees delinquent clients can expect.
  2. Include specific due dates on your invoices. Adding the phrase "payable in 30 days" is less firm than "due on November 30."
  3. Set up company procedures for collections. Define whose job it is to follow up with customers and exactly when statements and reminder letters should be mailed and phone calls made. Employees need to view debt collection as an important task, not a low priority.
  4. Email invoices instead of mailing them to shorten the collection cycle.
  5. When an account is past due, forget paper or electronic reminders: They can easily be thrown away or deleted. Phone calls and face-to-face meetings are more effective.
  6. Before you call a delinquent customer, review the history of the account. Keep all relevant records nearby to reference during the conversation.
  7. Make sure you talk to whomever pays the bills. If you can't get through to the right person, tell the receptionist you realize your calls are being screened. Then explain the purpose of your call and deadlines for payment.
  8. Remain calm and professional. This is a business transaction: You delivered a product or service, and the client owes you money. Don't yell, swear or threaten.
  9. Be precise. Don't let a client end the conversation by saying, "I'll send something soon." Get a commitment to a specific amount by a set date. Then summarize the conversation to the debtor so there's no misunderstanding and send a follow-up email.
  10. Document every point of contact with clients, including emails, letters, phone calls, etc. You may need it for litigation.
  11. Follow up each time a customer neglects to honor a payment commitment: Explain that you must be notified when a payment will be late, then ask when you can expect to receive it.
  12. Hire a debt collection agency. After 90 days past due, accounts depreciate at a rate of approximately 15 percent per month, according to industry experts. Outsource the job to a fully bonded agency that's a member of the American Collectors Association or the Commercial Collection Agency Association.

Debt collection is probably not the task you had in mind when you became a small business owner, but it is necessary to keeping your business healthy. The tips mentioned above can help.