Bad Debt Recovery: It All Starts with the Contract

Posted by Marilyn Miller on August 21, 2014  /   Posted in Uncategorized

Do you have a written agreement with your customers that lays out the terms of payment? No??? What are you waiting for? No one wants to believe that customers will not pay them, but life happens and it is important to be prepared. Plus, isn’t it always better to begin any business relationship with a clear understanding of its terms? 


A well written financial agreement in your basic business contract can help avoid disputes, or respond to disputes when they happen. A customer contract can actually reduce the number of accounts you need to refer for outside collection. 

If you do not have a customer contract, ask your attorney to draft one for you today. It will not cost you but a few hundred dollars and can save you much more in the long run. Even if you do have a contract, ask your attorney to review it. Your contract must include the following:

  • Clear statement of the scope of delivery of your service or product. Include a method to document changes to the original agreement, and when a separate charge will apply. 
  • Terms of payment – When payment is due, and how it should be paid.
  • Consequences of non-payment – State interest on past due items. Some states will allow for recovery of some of all attorney fees or collection costs, but only if it is part of the original written agreement.
  • Consent Language – Your customer should understand and agree that if you are forced to refer their account for collection, that all contact information they provide to you, including home and mobile number, email and employment information will be shared with your attorney or collection agency.
  • Personal Guarantee – f your customer is a business, especially a new business, ask them to personally guarantee payment. Read more about personal guarantees here

Do you use a contract with your credit customers? We would love to hear about it.

There’s so much you can do to reduce the debt you have to refer for collection! Download our “Ten Tips to Reduce Bad Debt in Your Business” now!



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