Debt collection is much more effective when the underlying debt is based on a contractual agreement. Contracts do not have to complex. A simple statement of your payment policies could be enough. A contract needs to be in writing, and agreed to by customer, in writing, before the transaction.
So when I am asked..
“Can I add collection costs onto the debt?”
…the first thing I do is look for a signed customer contract. Your ability to add costs onto a debt will varies depending which state you live in, but without a contract, your chances to add or recoup them are limited, if not non-existent.
Some small business owners believe that asking a new customer to sign a payment agreement/contract is starting a new relationship on a “negative” note. Not at all! In fact, communicating your payment expectations is a very positive start.
As I mentioned, a contract does not always have to be a complex and lengthy document. Even an email with the basics can work in some cases. The important thing is that the customer acknowledges their agreement, because contracts must be bilateral, that is, agreed to by both parties.
If you want to pass on any collection costs, your contract should mention it, something like,
“In the event of non-payment, you agree to pay all costs of collection.”
Once again, state laws vary regarding collection costs, but if your customer agrees to them, you are off to a good start.
If you believe that your oral agreement covers you, or if you are “too busy” or unwilling to get customers to agree to a contract, you may suffer the consequences later. You can design a process to streamline the contractual process. It can and will help maximize your collection efforts, and reduce your over all cost of collection.