Tips for Collecting Business Debts

You should take immediate action against a customer who would do anything to avoid paying, since you don’t want them as a customer anyway. But a customer who falls into one of the other two categories could be a repeat customer who would bring additional business in the future, and if their debt is handled properly and they feel you treated them fairly, may recommend your business to others. Below are some tips for collecting debts.

If you attempt to collect debts yourself on behalf of your company, familiarize yourself with both federal and state debt collection laws and laws that regulate the charging of interest or contact an attorney for guidance. The Fair Debt Collection Practices Act (FDCPA) regulates debt collection practices in the United States, mostly for those with more than $10 million in debt collection-related revenues. But even if you fall below that threshold, certain activities can trigger the law.

For example, using a name other than your name or your business name to collect a debt, or outsourcing debt collection activities to certain third parties may subject you to these federal laws. And in some states, including California, New York, Florida, Colorado, Connecticut and Massachusetts, among others, you will be considered a debt collection company simply by attempting to collect money owed to you. 

The more time that passes, the less likely it is that you will get paid, so send invoices and late notices promptly. Develop a collections policy for consistent handling of overdue payments, including what notices and letters will be sent and when, when and how you will follow up, and whether you will discontinue services for non-payment if the client fails to pay within a specified period of time or respond to communications. 

When making collections calls, your goal is to come to an agreement about payment. Consider offering a payment plan or discount – it’s better than not getting paid at all. Call at reasonable hours, stay calm, and be direct and polite. Listen to what the customer has to say. If a customer disputes the price, quality or delivery of your product or service as reason for their failure to pay, try to resolve those issues immediately, but try to obtain payment for the undisputed portion of the bill in the interim.

Do not leave multiple messages daily for customers who owe you money – this invites legal trouble and may cost you the customer. Do not exaggerate how much is owed or add fees or interest not disclosed in your original agreement. Do not disclose an individual’s debt to others (such as a co-worker, a debtor’s employer, etc.) or pretend to be someone else (such as a lawyer, government entity or debt collection agency) when contacting the customer about debt owed. Do not lie about whether you will report the debt to credit bureaus, start a lawsuit for non-payment, or contact the police.

Follow up phone calls with demand letters to customers who owe you money – make sure payment terms are clearly stated in the letter and that any required legal disclaimers are present. Consider hiring a debt collection agency at a fixed fee to write a series of demand letters for you.

Keep track of all communications with a customer about the debt, including the original bill, all letters sent, and the dates and times phone calls were made to the customer to collect the amount owed. If you believe the customer may go bankrupt, contact an attorney; if a bankruptcy is filed, you will need to cease all collections efforts and file a claim as a creditor.

To avoid payment problems in the future, check references before extending credit, develop payment policies that clearly outline what the customer is paying for, how much they must pay, and when the payment is due. Ensure that terms of payment, including any interest or penalties that you intend to charge, are clear on all bills and invoices.
If all else fails or you need some help developing collection procedures, tighter contracts, or changing invoice terms, consider hiring an attorney. These days, finding a lawyer is easier than ever with services like Legal Services Link. Simply post a short summary of your legal needs and let attorneys come to you.

For more tips on protecting your business check out our Small Business Legal Guide.