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Small Business Debt Collection: Top 5 Mistakes You Want to Avoid

Small business debt collection is not easy. Staff resources and time are limited, as most employees wear two or more hats. You do not want to make it any harder by making mistakes that are avoidable. In our experience, here are the top 5 mistakes in small business debt collection.

  • Waiting too long – It may be lack of focus, or an attempt to avoid costs of collection, but all too often small business owners wait far too long to send delinquent customers to collection. After 90 days, if you have no contact, get rid of it and bring in the experts. Holding onto files too long gives customers the impression you are not serious about your efforts. In fact, the longer you hold the debt the more chance you will increase your cost of collection, since collection agencies generally charge a higher rate for older debts.
  • No contract – A contract is your best debt collection tool. No time for a long formal contract? At very least send an email confirming prices and terms for payment and ask customer to acknowledge it. If your customer is a business, make sure your contract includes a personal guarantee.
  • Giving away leverage – If you had an unpaid bill, but your creditor allowed you to still receive service or product, how seriously would you take paying that bill? If you have leverage, use it. Do not allow clients to continue being the beneficiary of your good work. We realize that some businesses, medical practices in particular, may be unable to “fire” non-patients, but do what you can.
  • No consistent and coordinated effort – Small business debt collection requires commitment to a regular plan to review aging receivables and take appropriate actions. Have a strong collection letter ready and use key staff to follow up on the phone. One person has to drive the process, but the work can be shared.
  • No flexible payment options – As strange as it may seem, too many businesses do not even accept credit cards. Know your customers and how they pay, and give the opportunity to pay in a way that works for them. Some people want the “old school” option of sending in a check. Provide them an envelope to do so. Other people love paying their bills online so set up a payment portal that makes paying quick and easy.

Again, all of these mistakes are avoidable. Take a hard look at what you are doing, make some subtle changes and your small business debt collection will be much more successful.

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