To borrow from an old song, Debt collection and documentation, do go together like love and marriage. You can’t have one without the other.
Similarly, debt collection without proper documentation is set up for failure. Unless you put it in writing, you leave everything open to dispute. Here are 5 ways documentation can help with debt collection:
- Customer application – If you are thinking of extending credit, gather as much information as you can including bank and trade references.
- Contract – Once you have confirmed the terms and conditions of your arrangements with your customer, confirm in a written contract. If you are too busy for a formal contract, send customer an email confirming details. Remember though, that contracts must be bilateral, which means you have to ask (and receive) approval in writing from your customer. Again, an email back from a customer stating that they agree to your terms works.
- Personal Guarantee – If you are working with a business, a personal guarantee will protect your receivables if the company goes out of business. A personal guarantee means that the business owners pledge their personal assets if the business will not or cannot pay you.
- Payment Plan Confirmation – Commit any approved payment plan to writing, and ask your customer to sign it. Make certain your plan lists the amount to be paid, timing of payments and what will happen if payments are not made as promised.
- Collection Letter – Draft a template letter demanding payment from a customer. Give a specific due date for payment. List consequences of non-payment. Never threaten, but be firm and specific. Also, keep notes of all collection efforts, including emails and phone calls.
Think of debt collection and documentation as inseparable. It will not take too long, and the investment of time you do make will be well worth it.