If you own or manage a small business, you should already be familiar with the troubles that come with collecting outstanding invoices. Debt collection can be quite stressful if you do not know how to properly approach your clients and how to handle it within your business.
If done incorrectly, you might end up losing more money due to expensive legal fees or other problems that may occur.
Knowing what to do is crucial in making sure that your business is able to stay afloat while waiting for these late payments to arrive. It is easy to overlook a number of things when collecting a debt, for example, the debtor might be going through hardships in their personal lives or their business may be in financial trouble too. So it needs to be approached personally, not aggressively.
In this article, we will discuss some of the most common mistakes business owners make when it comes to debt collection to help you avoid them as you try to save your finances.
You Need To Learn More About Your Clients
Whether you are running an established business or just starting in the industry, you should always be careful in dealing with customers, especially if you are planning to offer them credit i.e products and services in advance of payment. Giving your customers the option to pay later is always a welcome marketing tool, but you also need to protect yourself by learning the necessary information first about the customer.
When allowing customers to pay via credit, you need the information to make sure that they can pay you back and that you can contact or trace them if ever there is a need to do so. Make sure that you get their complete customer information as validated by preferably a government-issued ID.
Simple details like their full name, home, and email addresses, as well as home and work phone numbers, are very important and should be regularly updated as long as the customer’s account is still active with your business.
Once you have secured the customer’s basic information, it is highly recommended to screen through proper channels before you extend a huge line of credit or extend any form of business with the said customer.
There are a number of reputable credit institutions that you can seek help from in order to check on a customer’s credit history, and it is best to discover surprises now than meet them when you are already having trouble recovering your money from the customer. This way, you can also ask the customer directly about any questions you may have regarding his or her credit records so that you can make a better decision regarding your business.
Find The Right Approach To Collecting Debt
A lot of business owners have difficulty in finding the proper approach to talk to a customer about outstanding debts. There are owners and managers who like to play it cool, extending additional courtesy periods to help the customer gather more time to come up with the due payment. While this can sometimes work in your favour, if you show the customer that you can be patient it might send them the message that you don’t really have an urgent need for the payment.
Regardless of your business’ current financial state, debts are contractually binding and should be paid as the customer is obligated to. You need to make sure that the customer knows his or her responsibilities in settling the due payment and you also need to make them understand that there are penalties involved for late and non-payments.
There are also owners who tend to come on too strong when it comes to collecting a debt. While it is important to be on the same page with the customer in terms of the payment, you also want to make sure that you do not end up harassing the customer. Being overly aggressive can lead to many disadvantages for you and your business. If the customer feels unsafe or significantly uncomfortable because of some poorly-worded statements you might give while attempting to get your money back, he or she can sue you for harassment.
Harassment cases will net you a number of penalties from the government and might even end up freeing the customer from any obligation to pay you back, resulting in a lot of financial burden for your business. Not to mention the bad publicity that it will bring that can lead to a loss of potential clients as well.
Sometimes, collecting debt can take a lot of toll on managing the business, even if you are being careful and doing the right things. When this happens, you can always try hiring professional collection services to take care of the matter for you.
JMA Credit Control is a good example of an effective yet affordable debt collection agency that can help you devote your time and effort into managing your business instead while they get you your due payments. Hiring professionals to collect a debt is a small price to pay to make sure that you get what you are owed in the quickest time possible.