Bad debt recovery is never easy for a small business owner. However, there are things that small business owners do every day that work against their best interests.

Here are the top 5 mistakes small business owners make with respect to bad debt collection:

Lack of focus on aging of receivables, and no in-house system to follow up with delinquent customers – Small business owners are busy. They have to manage the day to day operations of their business and also handle new business sales and customer service. It is very easy for a growing small business to fall in the trap of letting delinquent customers go too long without paying, simply because they are too busy. A healthy small business puts their credit and collections procedures front and center with the same priority as sales and customer service. We advise small businesses to look at how their bank manages their credit risk, and do the same. 

Nothing in writing – A contract that outlines your expectations for payment and the consequences of non-payment is a must. 

Not gathering enough or not updating customer information – If you are going to give a customer credit, you have the right to ask for information. You should update the information of repeat customers annually, at a minimum. Having good current customer information will make it easier to recover bad debt. 

Waiting to long to hire a collection agency – In house collection efforts should be short term, around 90 days, and then it is time to bring in an expert. The cost of collection agency will certainly be less than having to write off the entire debt.

Hiring the wrong collection partner – Some companies hire a collection agency with the lowest debt collection fees, only to find out that they really don’t have a partner who is going to work hard to get them paid. Some companies hire an attorney when they need a collection agency, or hire a collection agency when an attorney would get the best results. Take time and research and pick the collection partner that is right for your business.

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