It doesn’t matter what type of business you operate, making sure you get paid on time and as seamlessly as possible is critical to your success and survival.
Tough economic times often lead to slower customer payments. Businesses allow customers to buy on credit so they can make more sales. Unfortunately, granting credit to customers has costs and risks. If collecting customer debts is becoming an issue for your cash flow, it’s time to take a hard look at credit policies and establish collection procedures that encourage prompt payment.
Reviewing your accounts receivable is the first step. Accounts receivable is a term used to describe the quantity of cash owed to a business by its clients and customers. From there, you need to contact the customers and ask for payment. This is not easy for most business owners.
You need to consider the relationship and desire for future business with the customer. You need to examine your client list on a case-by-case basis. It is important for small-business owners to keep in mind that most customers are not delinquent on purpose. Some customers run into financial issues, like a job layoff or major medical illness. In some instances, the customer may simply have an inattentive accounts payable department that needs repeated prodding to make its payment obligations. A personal phone call with the customer is often the best first step in collecting a past due account. Sometimes this call will identify the problem and a reasonable payment solution can be outlined.
Small business owners essentially have two options to tackle collection issues — going after customers who owe you money on your own or hiring a collection agency. For those business owners looking to keep the process in-house, you will save money, but remember, more of your time will be delegated to going after those individuals who have not yet paid. You need to determine if you have the manpower and the time required to be efficient in these processes.
On the other hand, you can hire a collection agency, which is trained for just such matters. You need to determine if the fee you will pay for this professional service is worth the time it will free up; allowing you to focus on the business at hand. So, which option is better?
In looking for a collection agency, keep these items in mind:
• Search for a collection agency that is familiar with your line of work and knowledgeable in working with a business your size.
• Get references from other small businesses you are familiar with on the debt collection agencies you are considering.
• Make sure the agency you end up hiring abides by the Fair Debt Collection Practices Act.
• Make sure the collection agency you choose has errors and omissions insurance, which protects both you and the collection agency should the debtor want to sue for unwarranted efforts to collect.
• Check on the collection agency’s past success ratio.
In the event you decide to keep the collection process in-house, there are some guidelines you should consider following, including:
• Remember that the individual or business you are attempting to collect from is still considered a customer, so treat them with the respect normally given to your customers.
• Train those employees who will be doing debt collection on how to treat customers.
• Make sure you have a solid collection policy in place.
