Learn How to Collect Debt to Increase Cash Flow to Your Business
If your business has receivables, at some point you’re going to need to know how to collect debt. There are a few well known principles on how to collect debt that will help you make the time of action go quicker and painlessly.
The first step in collecting debt is to start with gentle reminder letters and phone calls. If you’re talking to a good client from whom to hope to get business in the future, a simple “I believe you may have overlooked this invoice” is a good start. If the debt has been noticeable for a while, you may need to step up your language a bit. “Upon receipt of this letter, please remit payment closest or further action will be taken.”
But maybe you can’t find the debtor in order to call them or send them a letter. If their last known phone number or address isn’t getting you in touch with them, try a private investigation firm or online investigation software. For less than $30 you can find the address and phone number of anyone in the United States, and often finding the debtor that’s been hiding will scare them enough to get them to pay. You can also hire a collection agency that makes use of private investigators if you don’t have the inclination to track someone down yourself.
When you’ve found the best phone number and address for the difficult debtor, the next thing you should do is to tell them that you’re reporting them to credit bureaus. Of course, you have to be willing to truly do this, but there are benefits to both the threat and the action. People who care about maintaining good credit scores may pay when they hear the threat, but reporting to the credit bureaus will help you down the line in addition. The homeowner who wants to get a HELOC, for example, may contact you and try to make good on their debt in exchange for you responding to the credit bureau that the debt was satisfied.
This can happen right away or it can happen years down the road. Report to the credit bureau as soon as you’re sure that the debtor is not going to pay up. This is an important step in how to collect debt already if it doesn’t help until a year or two down the road.
Another possibility is offering the debtor a settlement. This can be done on your own or by an arbitrator. If, for example, someone owes $5,000 on your store credit card, but the original debt was $3,000 and the rest is late fees and raised interest rates from after they stopped paying, it may be a win-win situation for both of you to offer to take $3,000 and drop all further claims.
A payment plan is also a possibility. Whether you offer skipped payments, interest only payments, or a lengthened loan term, it saves the debtor cash outlay during a financial crisis and benefits you over time because you make more money on interest.
The final thing you need to know when you’re considering how to collect debt is the law of diminishing returns. The amount of money you will retrieve on the dollar drops at 90 days, 180 days and one year. Concentrate your best efforts during the window of opportunity and you’ll get more money back. specialized collection agencies with skill in the area of how to collect debt advise that closest after 60 days is the best time to get your money back.