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Debtor problems and avoiding debt collection can be a major issue and should be taken seriously. In order not to fall into a cashflow crisis (not understanding it may do you harm and even lead into bankruptcy), to put in simple words, you need to collect money others owe to you faster than others collect owed money from you. Debt collection is usually avoided for two reasons: Some people feel unpleasant to collect debts; Due to many daily business activities, debt collection is put on the side and believed that debtors will eventually pay out what they owe.

In order to avoid these problems, but not break your business relationships, you should establish an efficient debt collecting system. Here is how you can do it.

Age And Size Of The Debt

The older the debt, the harder it will be for you to collect it. List them according to their age, from oldest to those most recent, and chase them up. Try to avoid large debts. Monitor late payments and unpaid invoices in order to keep the debts as low as possible. Otherwise, problem customers will keep ordering services and goods from you, and their debts will increase over time.

Ways For Collecting Debt

You would like to keep your business relationship, but also collect the funds owed to you. Thus, you should try to remind your debtors by paying them a personal visit, or via telephone, letters and reminders. If that does not work, then sending out a legal letter, going to court or factoring.

Personal visits

The most effective way of collecting debt, but if your customers are relatively far away, it is also the most costly. Prepare yourself before the visit, decide what you want to achieve, and how. Talk to them and be realistic, see how much money you can recover, ask for post-dated cheques or personal guarantees and find out who else does your associate owe money to. If the debtor is another business, look around the firm, see if the place looks busy and the way it is managed. Is the owner welcoming, trustful and ready to talk, or is he or she avoiding you? In case of the latter, it shows you their lack of professionalism. If there is no solution, try to get as much as your funds back and concentrate on other worthwhile and valuable customers.

Telephone call

This is not as effective way as a personal visit, but it does produce results. You are making a direct and personal contact with the debtor, and are maintaining the relationship.

Letters and reminders

The least effective and impersonal way, but actually the most common. It represents an easy option for informing your debtors about their late payments. It does not work when dealing with habitual late payers, but when it comes to customers who intend to pay (but delay their payment for whatever reason).

Hiring a debt collection agency

These agencies are specialized for debt recovery. They charge a commission for their services, depending on the amount of debt that needs to be collected. If your debt problem seems to get bigger, then consider consulting with one of these agencies.

Before you start the debt recovery process, make sure familiarize yourself with necessary details. What kind of customer you are dealing with? Have they attempted to explain their situation or to reduce the debt already? Whose business is at fault, yours or theirs? Are their cashflow problems temporary or not? Do the products or services you delivered meet contract regulations? When you get in contact with the customer, he or she should not feel threatened in any way, you should both benefit off the debt collection by maintaining a good business relationship. Show understanding and tolerance for their situation, and they would most likely be loyal to you in the future.