There is nothing as demoralizing for a business owner as getting a new client, providing your service or product and then not receiving payment. When this happens, you ought to hire a debt collection company. The good thing is that you can avoid this problem by following these simple steps.
1. Lower the risk
Do as much as you can to reduce the possibility of overdue payments turning into bad debts. It is not usually easy, especially for those who are new in the business. Ask the client when they will pay for an order before accepting it.
2. Make a credit application
Collect information about your client through a credit application. This is one of the strategies that banks use to avoid bad debts. A one-page document to get the necessary identification information and permission to probe their credit is adequate. However, most firms use two pages so that they can be in legal agreement with the client.
3. Assess the client’s creditworthiness
Request trade references from new customers. Next, contact the bank and trade references that the client included in the application. Find out if they pay on time and if they have a reasonable bank balance. You can also run a business credit report on the client to know if they have a history of paying late or if they have tax liens.
4. Document the transaction properly
Make sure that every order is in writing with your client’s verified business name. Include all the information, such as delivery dates, prices, quantities and payment terms. Verbal orders leave a loophole for non-payment or disputes. Keep the documents as proof until the customer makes the payment. The documents will be tremendously helpful should you need the services of a commercial litigation lawyer.
5. Create collection procedures and follow them
Customers can tell who they have to pay on time and who they don’t have to. That is why you should create a debt collection procedure so that the clients know you are strict from the onset. Send an invoice the moment you provide the service or ship the product. If the payment is not remitted by the next day, follow up with the client. Decide how frequently you will call the client to remind them of the pending payment.
6. Contact a debt collection service provider
If the payment is 75 days past due date, you should focus on resolution. If the client is claiming to have cash flow problems, ask for more details so that you can gauge whether to be patient or not. If they ignore you, it is a sign that they will not pay you back, so send a final demand notice. At this point, you should consider involving a debt collector. When you hand the debt over to a collector, the client will realize that you are serious about getting your money. Most will pay everything upfront while others will ask to pay in installments.
