Collections: collecting nonpayment on your own and using an agency if necessary
Sometimes you have to resort to tougher measures to get payment from your customer. The following will provide you with some collections techniques to allow you to get your fair payment from your customers who will not pay.
Mailing out collections letters
As part of your forms arsenal, you should have several letters ready to send out when a customer’s account becomes past due. The letters can be increasingly firm the more that you have to send.
Getting an attorney to send letters
If your calls and letters have not worked consider having your attorney send a letter demanding payment. The customer may view the request more seriously when it comes from an attorney and, consequently, may be more inclined to pay.
Relying on collections agencies
Collection agencies specialize in tracking down and extracting payment from overdue debtors. You typically use collection agencies as a last resort (except for suing customers in court) because these agencies keep a large percentage of what they collect for themselves. Remember, also, that using a collection agency may alienate the customer (but then again, who wants customers who do not pay their debts).
If you do decide to use a debt collection agency, here are some tips on how to select:
- Do the research: debt collectors often specialize in certain types of debt. For instance, some may focus on securing funds from large business, while others may focus squarely on small businesses or individuals. Find an agency that fist the type of debt that you are after.
- Verify the agency’s legitimacy: depending on your state or locality different rules may apply to different collection agencies. Ensure that the one you choose is bonded and licensed correctly for your locale.
- Ask if the agency uses “Skip Tracing”: unfortunately some debtors skip town. To combat this practice some agencies use what is known as “skip tracing,” which means they use and have access to several databases that allow them to locate a debtor who has left no forwarding address. This is especially important if you have been contacting your debtor and have been routinely ignored.
- Make sure the agency has insurance: no matter how careful you are and how much research you do there is always the possibility that the debtor will feel harassed and will decide to sure. Whether or not you win your case, you want to make sure you will not be liable for hiring the agency. Get proof of insurance from your debt collector in the unlikely event that your debtor takes you to court. This is most often called “Errors and Omissions” insurance and is held by god debt collection agencies.
- Compare fees and contingent prices: some agencies will use flat fees, contingency fees, or a combination of both. Find out what will work best for you. Keep in mind, however, that once you have hired a debt collector, you will not be receiving the full and total amount you are owed. That is why you should exhaust all other resources before turning to a collections agency.
 Richard D. Harroch, Small Business Kit for Dummies, (Wiley 2nd Edition)(2004).
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