Debt collection is, unfortunately, often a common fact of life for the average small business. No matter what, you’re going to have customers who either forget to pay their bills, prioritize other bills, or just plain don’t want to pay.
If you accept every sob story about not paying up, your business would go under faster than you think. If you are too brazen, however, you may end up collecting less because the customer just needed more payment options, not that they had no intention of paying.
Debt collection is a universally accepted woe, nowadays, so there is a fine line that needs to be toed, or you may end up being in not only more trouble financially, but possibly criminally, if you aren’t aware of the state or federal laws. We’ve compiled a short list of the biggest Dos and Don’ts that you should follow when trying to collect business debts.
What you should not do
In accordance to the FDCPA (Fair Debt Collection Practices Act), FTC, and CFPB laws that govern debt collection practices, your attempts to collect debts need to abide by common decency laws, which you may not be aware of. These include:
- Pretending to be someone you are not
- Lying about the owed balance
- Calling before 8 a.m. or after 9 p.m.
- Adding fees or interest that are not under contract
- Contacting or notifying other persons besides the debtor
- Claiming that you work for the government
- Threatening to have them arrested or property repossessed to collect payment
What you should do
Some of the things that you should not do when attempting to collect debts owed can seem obvious, but desperation can make people do things that they think they can get away with, but can have serious repercussions.
If you accept every sob story about not paying up, your business would go under faster than you think.
Instead, you should be thinking more tactfully about ways to keeping in contact with customers who you know are having trouble making their payments. Sometimes being the rare voice of empathy, coming straight from the boss’ mouth is enough to get the customer to care more about the money that they owe, putting a face and a voice behind what is typically viewed as greedy businesses who don’t have a pulse.
If being nice is falling on deaf ears, you may find that taking them to small claims court may be your best, and most financially sound way in dealing with avoidance issues. Believe it or not, small claims court cases are won more than half the time by small businesses. These cases are much easier to win for small businesses in contrast to civil disputes.
If your debts are too large to collect in a small claims court, then you have no choice but to hire a debt collection company. Do your homework on the various agencies and make sure they are in compliance with the state and federal laws and that they have a track record of collecting debts, as well as how much they actual recover for their clients. The percentage that agencies charge for their services can vary wildly.