subject: Discover How To Collect Debt To Increase Cash Flow To Your Business [print this page] Discover How To Collect Debt To Increase Cash Flow To Your Business
If your business has receivables, at some point you're going to need to know how to collect debt. There are a few well known principles on how to collect debt that will help you make the process go quicker and painlessly.
The first step in collecting debt is to start with gentle reminder letters and phone calls. If you're talking to a good client from whom to hope to get business in the future, a simple "I believe you may have overlooked this invoice" is a good start. If the debt has been outstanding for a while, you may need to step up your language a bit. "Upon receipt of this letter, please remit payment immediately or further action will be taken."
One thing people may not consider when thinking about how to collect debt is hiring a private investigator. If you are having trouble getting your client on the phone or getting bills returned to you, a professional investigation service will be able to locate them as long as they're still in the country. Sometimes finding out that they can't hide from you is enough to get them to pay. If you are considering hiring a professional collection consultant, one who has access to private investigation services is your best choice.
When you've located the deadbeat client, the next step in how to collect debt is to threaten them with disclosure of the debt to one or more credit bureaus, and then actually going through with the reporting. Both threatening and really taking action in this area will have benefits. Some people will be motivated by the potential danger to their credit scores. It will still help you with those who aren't in time, though. Eventually when they want to take out a loan they'll have to deal with you and pay off the debt unless they want to get a terrible interest rate.
This can happen right away or it can happen years down the road. Report to the credit bureau as soon as you're sure that the debtor is not going to pay up. This is an important step in how to collect debt even if it doesn't help until a year or two down the road.
Another potential way of collecting debt is offering the debtor a settlement option, whether it's directly or through an arbitrator. Getting you money quickly may make it worthwhile for you to give up some of the full dollar amount, and it may make the difference between the debtor being able to pay and it being hopeless. Sometimes a plan that benefits both parties is the best way to collect debt.
Another win-win situation for debt collection is to come up with a payment plan. You can tell the debtor that he or she can miss a couple of payments, switch to payments that only take care of the interest, or change the terms of the loan from say, ten years to fifteen to lower the payments. This will give the client a break in the short term but it will also make you money in interest in the long term.
The final thing you need to know when you're considering how to collect debt is the law of diminishing returns. The amount of money you will recover on the dollar drops at 90 days, 180 days and one year. Concentrate your best efforts during the window of opportunity and you'll get more money back. Professional collection agencies with expertise in the area of how to collect debt advise that immediately after 60 days is the best time to get your money back.
