How to collect Small Business Debt before hiring us.

Small businesses rely on a healthy flow of income to remain in business—especially since over 50% of new businesses fail within the first five years. For small businesses, a bad debt can mean the difference between profitability and net losses. For a small business, collecting debts can be a difficult and, occasionally, litigious process. There are a number of things you can do to increase your chances of being paid. Read on to find out how to avoid bad debts, manage overdue payments and collect debts.

 

1

Develop a payment policy. Before you provide any services or goods, contract with your customer so they understand what they are responsible for paying and when. Make sure all document language is clear. Discuss the account with the customer so you can be sure they are familiar with any charged amounts and due dates. Payment terms need to be agreed on by both parties.

  • Consider adopting a late payment fee to encourage on-time payments. You may choose to charge a percentage of the total bill when payments become delinquent—2% is typical. Make sure all late fee policies are included in your contract or payment policy.
  • You may prefer to ask for at least 50% of payment upfront. This ensures you at least receive something in exchange for your time and efforts.
  • Do research about collecting interest. Federal and state laws regulate the collection of interest on debts. Always make sure that any interest you charge is lawful and included in your payment policy to avoid debt forfeiture or a fine. You can check usa.gov for your state's usury laws.
  • You can also check your state's attorney general website for information on legal interest rates and legal practices in your state.

2

List the due date on every bill you send. Some invoices state, "payment due upon receipt." You may also use "net 15 days," "net 30 days" or any other period of time in which you expect someone to remit payment.

  • Placing a due date on a bill encourages your customer to include it in a current or upcoming billing cycle. If you do not place a due date on the bill, the business or individual may wait a month or two before paying, especially if bills are tight.
  • Don't wait 30 days from the date of service or delivery of the product to send out a bill. Bill every 15 to 30 days. The sooner you send out the bill, the more likely you will get paid sooner.

3

Send reminder bills. When a payment becomes past due, immediately send a reminder noting the amount owed as well as the fact that payment is now past due. Many customers are so busy that they simply forget a bill hasn’t been paid. They will often pay it as soon as they realize payment is past due.

  • Keep a record of all contact with the debtor. You will need the dates and times of your calls, letters and any other communication about the late payment, in case of legal action. You may also need to address this information when you contact the debtor.

4

Keep a contact with each company or customer. Make sure you have relevant contact information, such as address, telephone number and extension number, if available.It is also good to check in with your business contacts regularly. Engaged business relationships promote a mutual desire to fulfill transactions.

  • Address each bill directly to the person who makes financial decisions in a business or the person responsible for the account.
  • If you don’t have a contact for a business transaction, you can usually call the front desk and be connected to Accounts Payable.

5

Create a procedure for dealing with debts. You will need to decide what happens when payments are late. Generally, you first send out a reminder, then call the customer or business that is late with a payment, follow up, try to negotiate and then take it to collections or pursue legal action if the debt remains unpaid. Everyone in your company should understand the process so they know where to direct those who owe debts when they reach out to you.

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