Wiping Away Debt

How To Recover Bad Debts

In this weak economy, business owners are already struggling, but adding stalled accounts receivables to the mix can make for some difficult financial times.

According to a recent research, small business owners are having to wait nearly 20% longer for payment than they were the previous year. Furthermore, there had been an increase in the number of business failures, which analysts attribute to the difficulty that small enterprises face in collecting on past-due accounts. There are, fortunately, techniques for small business owners to increase their odds of collecting on such invoices.

Acknowledge The Timing

Many research have been undertaken on the art of collecting past-due bills, and professional debt collectors place a high value on the findings of those studies.

For example, it's common knowledge that if an account is beyond 30 days past due, it's suddenly less probable that the funds would be recovered. If it's been more than 60 days, you'll have a good chance of collecting, but if it's been more than 90 days, the recovery percentage drops to little over 70%. Accounts that are six months late have a 57 percent probability of being paid, but those that are a year late or longer are unlikely to be paid.

Staying In Contact With The Customer

When cash flow isn't what it should be in many businesses, some invoices are put on hold to be paid later. This difficulty can sometimes be resolved by just phoning and speaking with the customer.

Offer to set up a payment plan on the invoice if the customer discloses to you that he or she is having cash flow issues. This may put your invoice to the front of the list of invoices to be paid, or the client may simply appreciate your willingness to work with him or her and make a greater effort to get you paid.

Make It Personal

Sending a letter requesting payment used to be enough to obtain a reaction, but nowadays, it takes a lot more to catch a delinquent customer's attention. Meeting a consumer in person, according to some experts, may be the answer. Showing up at the office unannounced and waiting until the manager of the accounts payable is available, as well as turning up at the same spot the customer regularly goes for lunch or coffee and specifically addressing the overdue account, would likely garner some attention.

Make a Settlement Offer

Consider offering the customer a settlement if he or she refuses to cooperate with you and make payments on the past due amount. In this case, the customer agrees to pay you a portion of the total bill in exchange for you forgiving the remaining debt.

When doing so, you should always try to collect enough to cover your charges, but if the debtor's condition is desperate enough, it may be wise to agree to anything simply to get some of the money owing back.

Invest in a Mediator

If you've attempted to sort it out with the debtor on your own but can't seem to come to an agreement, you might want to hire a professional mediator. These professionals collaborate with creditors and debtors to find solutions that suit both parties. If you go this route, make sure you hire someone who has been trained in the craft.

Send a Final Letter

If you've tried to collect the bill on your own and failed, there's one more thing you may do before entrusting the account to a professional debt collector. Sending a demand letter to a customer, informing them of your intention to send their account to a lawyer or collection agency, can sometimes motivate them to take action in order to avoid the penalties. If you do write such a letter, make sure to provide a deadline for the customer's payment in order to avoid having his or her account turned over.

Seeking Professional Help

If you've tried everything else and still can't get the debt paid, it's time to call in the professionals. Professional debt collectors are usually able to recover past-due accounts when business owners are unable to do so. That's because debt collectors work full-time and have access to all of the resources at their disposal, whereas small business owners usually wear many hats despite a lack of specialization in that aspect. Check their online reputations to make sure they don't have a bad reputation for mistreating debtors, as your company's name will be linked to their activities. Only hire a collection agency that works on a contingency basis, meaning they only get paid if the debt is really collected. Never commit to a fixed cost for a service since they will be less motivated to collect the money.

Take Your Case To Court

If everything fails, you can go to court and sue the debtor for the monies owed to you. If you win, the debtor will be served with a judgment indicating that he or she owes you the money. It will have an impact on the debtor's credit report until he or she pays it off, and it will most likely preclude him or her from obtaining credit from anybody else. A judgment accrues interest each year until it is paid off, so even if it takes a long time to collect, you will at least be earning money. If the sum is beneath a specific threshold, you can file a lawsuit in small claims court, which is a simple and quick process.

Obtain a Lien

You can take the procedure one step further if you've brought a debtor to court and gotten a judgment against him or her, but the debtor still refuses to pay. You will be allowed to place a lien on the debtor's property in most circumstances. If the debtor decides to sell the property, you'll be able to collect on the loan.

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