Small business owners should always try to collect debt in house before sending the file off to a collection agency. However, there needs to be a plan for debt collection success:specific actions to take, and a time limit as to how long you will wait on delinquent customers.

A great collection letter is always a good start, along with a few reminder phone calls. We recommend two letters and a final notice, with calls from support staff and a final call from management. If you do all that, and you still have no response, do not wait any longer.

Some customers may not be able to pay their entire bill at once, but would be willing to set up a payment arrangements. It is very important to document all arrangements: how much will be paid, how it will be paid, and when payments are due. Also, be certain to include language about what will happen if payments are not made as agreed. 

It may also be appropriate to settle the balance owed in order to prevent sending a customer to collections. Once again, documentation is crucial. If you are going to offer a settlement, you must make it a limited time offer and must inform the customer that if they do not pay the settled amount in the time agreed time period, that the settlement will be void and the full balance due and owing. 

If you take a few minutes to make sure that you communicate all the details of an arrangement to your customers, you are more likely to be successful.

Want more tips on how to reduce bad debt in your business? We have them!