Poor economic times have caused a dramatic increase in B2B debt collections over the past couple years, but providing quality, and even sympathetic, accounts receivable management can help you to recover funds that you might have otherwise lost. After all, everyone wants to get paid for the work that they do. Keep reading for some useful fundamentals that you can consider when managing your accounts receivables.
Always Have a Plan
Before anything else, it’s important that you devise a strategic plan that is going to keep you from panicking should you have a business, or consumer, defaulting on their payments. Take the time to decide if you are going to keep your debt collections in house or if you’re going to outsource to a collection agency. Each delinquent file that you may come across should be handled differently, so many small businesses opt on trying to work out payment solutions in house, first.
One of the benefits of dealing with a third-party collection agency is knowing that you’re dealing with a business that specializes in the recovery of owed funds. However, if you take this route, ensure that that the collection agency properly understand your business’s policies, and procedures. Would you be willing to make settlements on accounts over a certain amount? Are you willing to accept payment arrangements, or would you be requiring the full amount at once?
Consider a Letter of Demand
Before you begin looking further into debt collection, try sending a letter of demand to the business that has defaulted on their payment. Creating that initial contact in a professional manner can often lead to the debtor making their payment voluntarily without further action. Businesses might also contact you for further payment arrangements
Your demand letter should include the following:
- A professionally structured letter that has been approved by, or written by an attorney.
- The correct debtor and creditor information.
- The minimum and full balance that is due and when it is due by before further measures are taken.
- The debtor’s account number.
- All creditor contact information along with a listing of the ways your debtor can repay their debt.
Always be Compassionate
Financial hardships are one of the heaviest weights to carry on your shoulders. By understanding that the business that has defaulted most likely didn’t intend to default, you can begin to be compassionate about their struggles.
Regardless of the fact that the business owes you money, it’s incredibly important to maintain professionalism and compassion. Work with the debtor to see what you can do to alleviate some of their stress and make their situation better. Businesses, and people, are going to react to the attitude that they are given. By providing them with courtesy, instead of yelling at them or making threats of legal action, use a softer approach first. Once your debtor gets back on their feet, you’re almost guaranteed a life-long client who is going to remember the way you treated them during their business struggles.
Look into Litigation
After you have made valiant efforts to recover the debt that is owed to your business, you’re going to find that there are times where it fails, and you need to take the next step. Many small businesses do choose to outsource their B2B debt collections to qualified agencies, because if it does come down to litigation, the agency has all of the documents, and their attorney can file on your behalf.
When you’re at the point of legal action, you are going to need supportive evidence in order to obtain the judgment that you need.
- The initial agreement signed between both parties that shows the amount agreed to be borrowed and paid-back.
- Emails, letter of demands, and even voice records of phone calls made to try and recover the debt.
- All account statements from the time it was open until the current date.
- Any other documents that are going to work in your favor and help your business recuperate the funds owed.
There are always going to be businesses and people who can’t pay, or simply won’t. Your course of action is going to be at your own discretion, and one file won’t be like another. These small businesses have undoubtedly just fallen on hard times, and more often than not, they are going to work with you to get their payments back on track. Understanding the fundamentals of initial debt collection is going to make it easier not just on your accounts receivables department, but on your clients, too. Be diligent, non-threating, discreet, and sensitive when approaching debt collection.
Have you ever had a small business default on their account with you? Have you thought about what you would do for debt collection should accounts begin to default? Start a discussion below.