If customers owe you money, chances are they owe other people money too. If you do not have a focused and consistent effort to recover your bad debt, you are putting the health of your business at risk. Small businesses rely on a steady stream of cash flow to keep their businesses going and growing. 

Most small business owners have little if any time to go after their bad debt or slow paying clients. It would naturally follow that they would seek help from a third party, usually a collection agency to help get the money due them. However, every day we hear reasons why they do not want to use a collection agency.

We have identified 5 terrible, awful, no good, very bad  reasons….in fact the WORST reasons why small business owners are not using a collection agency to help them recover bad debt. 

Take a look at your past due customers. Separate them into two groups: customers you would take back if they brought their account current and those you would never do business with again. Both of these groups can and should be sent to your collection agency, but the approach will be different.

Customers you don’t mind losing are really not the issue. While you want your collection agency to act professionally and lawfully, you are not looking to salvage the relationship. For the customers you want back, use the collection process as a way to communicate your willingness to go forward with them. If you choose the right collection agency, you will find a partner willing to work with you to carefully leverage customers with the potential to get back into your good graces when they pay what they owe you. 

Also, be careful about the types of accounts you refer to collection. If the debt is poorly documented, it may not be your best pick. (And, please take a look at your contracts for the future). Disputed bills can be sent to collection as long as you can respond to the dispute and document your response. Make certain you give all information on any disputes to your agency – don’t blindside them.

If your files are referred for legal action, once again ask yourself if you have the proper documentation. Some defendants will attempt to countersue, but if you choose files that are well documented, you have a good defense and should not have an issue. Save the court filing fees for cases you can document, and cases you can win.

As respects the fear that customers will “trash talk” you, we have never seen this make any impact. How many people want to admit publicly that they owe money. 

Give customers an opportunity to pay you. Send customers several invoices and a final notice before sending them to your collection agency. We do not recommend sending off accounts that you have not even attempted to collect yourself. 

In the end, it all comes down to the quality of your documentation and how you communicate with your collection agency. If done correctly, collection could actually turn out to be a good way to keep the customers you want to keep, and weed ouf the ones you don’t.