If you are like many small business owners, you have taken time from your business to work on bad debt collection. In some cases, you may have chased a customer for months without success. When you decide that customer over to a third party collection agency. When the customer pays the collection agency, you are probably upset that it took collection activity to get paid, and wonder what the collection agency did to make it happen, am I right?

Here is a trade secret. Bad debt collection is not magic. It is the result of consistent and focused effort. There are many things that you can do to reduce the risk of customer bad debt  as well as ways to protect your right to payment.  If you do send a file to a collection agency, make certain you give them all the information they will need to recover for you successfully.

To reduce customer bad debt and protect your right to be paid, it is important to get as much information as you can on customers and keep it updated.  A customer contract, even a basic one, is always helpful. Your bills must be timely and accurate. Create a standard operating procedure to follow up on slow or non-paying customers. Know when you need to hire a collection agency.

Your collection agency are not magicians. There are certain files that should never be referred for collection. For example, any file that is beyond the statute of limitations or the result of an error in billing, or when the debt is the subject of a serious dispute that should be referred to an attorney for litigation. On the other hand, a collection agency has special tools to help locate people and their assets. Collection agencies use a variety of methods to recover for you, and with your support, can improve your cash flow like, well, magic.