Many companies have problems with debt collection, which can obstruct their money flow and eventually lead them to bankruptcy. Harsh debt collectors are the thing of the past, and experts determined that friendly approach works much better, plus it enables companies to retain customers and make them more loyal in the future. In this article we described some of the friendly strategies you can use for debt collection that will make your debtors more willing to pay their invoices on time.
Best way to secure your company’s money flow is to avoid doing business with bad debtors. That’s why entrepreneurs need to invest more money and time into procedures that will prevent customers to prolong their debt. Each contract signed between company officials and customers and business partners should clearly define amount of money, payment due date and additional fees or interest that might be imposed if debt is not settled in scheduled time. Two weeks is an optimal deadline for debt settlement, but in case company officials are signing some big contract due date can be prolonged. Debt interests are usually determined by federal or state laws, while additional late-payment fees usually range from 1% to 5% of the whole sum.
Another very important procedure, which should be used for preventing bad debt is credit screening of all individuals and corporate entities company is doing business with. Company officials should check all data they can find online, and for more detailed checks they should hire agencies that offer credit screening services.
One of the prerequisites of successful debt collection is a frequent and overly polite contact company officials should have with their debtors. This contact should include:
- Frequent reminder e mails and bills;
- Non-threatening phone calls;
- Demand letters and e mails, which should be little bit harsher than reminding ones, but shouldn’t include direct threats.
Debtors can also be contacted through social media, but only if they are already part of company’s circles. All direct contact we mentioned in this paragraph, including: phone calls, e mails, social media messages, SMS and so on, should only be performed during company’s working hours. Early morning or late night contact can be viewed as harassment especially in case of direct phone calls.
Understanding debtor’s situation is very important for successful debt collection. Further negotiations with debtors should include various offerings from both sides. Company should offer to prolong due dates and subtract interest or late-payment fees from the full amount of debt. Although this sounds like the direct loss of funds, these small exemptions will make debtors to work harder and pay back the rest of the debt in time. It also saves company from settling debt in court, which can be a huge drag for both sides.
Negotiations are also great for finding out more information about debtor’s state of finances and willingness to pay back the money he/she owes. With some individuals and companies it is much more economical to take smaller offerings and cut all business ties immediately after that.
Hiring an Agency
If none of these strategies work, hiring a debt recovery agency is definitely the best option company management can choose. Agencies offer different conditions, and for smaller debts they mostly take 30% of the sum. Of course the final price also depends on the amount of money they will be able to recover.
Friendly approach pays off big time when it comes to debt collection. It enables company management to take firm stand towards the debtor and saves company from prosecution and court settlements, which can severely damage its reputation.