Need to Collect Outstanding Debts from Customers? 5 Things You Need to Know
When it comes to debt collection, no one wants to end up in a awkward situation! Whether it is an unpaid bill of a hundred dollars for goods sold or thousands of dollars in services rendered, many businesses face the prospect of debt collection on a daily basis. At some point, every company or business is going to have to deal with a customer who owes them money. From time to time, they may also have someone who does not want to pay the money owed. Your chances of collecting a debt diminish with time, so it is best to be proactive. Debt collectors or a collection agency are often a great resource when it comes to collecting outstanding debt. If you need to collect outstanding debt and you don’t know where to begin, this article will help! Below are some tips, advice, and important information on how you can collect from your late-paying customers. Here are 5 things to consider when you need to collect outstanding debt from customers and what a collection agency can do for you.
1. At what age should I place a debt?
If you have an outstanding invoice that has gone on past 90 – 120 days, it has gone on too long. If your terms are 7-14 days, then even 60 days is far past due! Recovering bad debt is not always an easy process, and slow payments can cost you time and money. It is time to take action! The longer the debt sits, the less likely you are to get your money back.
Your first step may be to phone the person who owes you money. It is one of the most dreaded aspects of being in business, but eventually you will have to pick up the phone and ask your customer to pay that late invoice. Here are a few tips for phoning your debtors:
- When collecting past due accounts, don’t let emotion get the better of you! If you make a phone call that comes across as threatening or harassing, you may be heading for big trouble.
- Be mindful of the time of day you make the call. It is best to call during normal business hours.
- Make sure you are prepared for the phone call and gather as much information about the debt as you can. Have the past due invoices in front of you.
- Make sure to take careful notes while speaking with the debtor, especially if there are any disputes. It is best to speak with a firm tone, and to be as polite as possible given the situation.
- Trust your instincts. If you suspect the person on the other end of the call is being fake or making excuses, your gut reaction is likely correct. Often times a debtor may be embarrassed or have fallen on hard times, do try to be mindful of this.
- Try to finalise when the payment can be made.
If you are successful at receiving the payment with this phone call, congratulations! However, it may not always be this simple. If the client is making excuses and is still not willing to pay the owed debt, you may need to consider the next step. At this point, working with a collection agency may be the most effective way to recover the outstanding debt. If you’re not getting paid, your customer or debtor may need some extra pressure.
Most collection agencies will collect on a debt amount over $50.00. Remember the sooner you take action, the more likely you are to get paid. It is a good thing to consult with your collection agency regarding the collection of the debt. A debt is collectable for up to 6 years in most Australian states (the exception being Northern Territory, which is only 3 years). If you want to avoid prolonging the outstanding debt, a collection agency is the best way to regain the outstanding funds. Be aware that if the collection agency does not result in collecting the outstanding funds, you may need to commence legal action.
2. How much does my debt need to be in order to get a collection agency involved?
A collection agency can be hired for any amount of outstanding debt. Generally, the debt would need to be over $50.00. Hiring a collection agency is a way more effective method of collection than on your own. Often times a debtor may respond negatively when being addressed directly. They may make poor excuses, or not answer their phones! Debt collectors can collect when you can’t.
Not only are they trained professionals, but the use of a collection agency greatly increases your chances of being paid back. Often times it only takes one letter or one phone call from a collection agency to let the debtor know that you are serious about repayment. By hiring a collection agency, you are communicating to the debtor that you are not prepared to wait any longer. Using a collection agency also allows the debtor no more excuses! This shows you are serious about getting your money back. Furthermore, in the event of not being paid, any debt can result in legal action. Most debtors do not want to go to court over past due statements, and will more often than not resolve the issue with a debt collector. Most often a debt under $1000 will not result in legal action as it is not cost effective for your business, so it is especially important to collect on those smaller debts. Once again, if the debt has gone on past 90-120 days, it is in your best interest to consider hiring a collection agency.
3. What are the benefits to working with a collection agency?
Every business regardless of size needs its cash flow to be in outstanding shape. If it is not, it is hard for that business to grow. The recovery of bad debt is vital to your business. It can be a touchy subject for both the collector and the debtor, because of this, working with a collection agency is the best way to retain those funds. A debt collector can help you get the money that is owed to you, and fast! Often times one call from a collection agency is all it takes for the debtor to pay up.
Generally a written notice, or collection letter, will be sent to the debtor first. This is referred to as a letter of demand. A letter of demand is a letter stating a debt is due. A letter of demand explains that if the debt is not repaid, legal action may be taken. A collection agency can also call the debtor and advise of impending legal action.
Another benefit to working with a collection agency is that they can help draft quality terms and conditions of repayment. This is a good idea for all businesses, big and small. Especially if you may encounter outstanding debt situations in the future. A collection agency cannot charge the debtor any extra collection costs, so it is important to be aware of this. The only exception to this rule would be if there were appropriate terms and conditions previously set in place by the creditor and the debtor. A debt collector can communicate and negotiate with the debtor in a firm, yet respectful manner. A debt collection agency will develop an action plan, and follow up to make sure the debtor pays up!
4. What am I entitled to get back from my debtor?
Ultimately, you are entitled to get back all the outstanding funds that the debtor owes to you. By working with a reputable collection agency, you are communicating to debtor that they can no longer delay repayment. You are entitled to no more excuses, repayment in full, and if they are still unwilling to pay you are entitled to legal action.
A debt collector’s primary concern is to get bad payers to settle in a timely manner. If they do not, legal action is imminent. While you are entitled to receive your payment back in full, you are not entitled to charge your debtor any extra collection costs. Unless you have clearly outlined in your terms of trade, unpaid debt does not accumulate interest. If you have had difficulties or poor terms of trade, a great collection agency can help you draft better and more efficient terms of trade for the future.
5. How long will debt collection take?
Understand that the process of debt collection can vary depending on how the debtor responds to the debt collector. The first action is to send a letter of demand. Often times the letter of demand is received and the issue is resolved quickly. Depending on how the debtor responds to our letter of demand may determine how long it takes to recover your money. If the debtor receives the letter of demand and pays right away, you could see your money as soon as 7-14 business days. A debtor may be willing to negotiate a payment plan, which would see you receiving money back in increments. If legal action is taken and the debtor is difficult to serve, not at the given address, or threatening – the process can take longer. If this is the case, you may be looking at a few months, if not longer to recover the outstanding debt. For this reason, it is very important that all information regarding the debtor is given to the collection agency.
At Pro-Collect, we offer fast and assertive debt collection. Pro-Collect allows you to lodge your claim online, whether the debt is with an individual, a partnership, or a business. For all debts we require the name of the debtor and their current address. We cannot move the process forward without a current address! We also require information on the amount of the debt outstanding, and what the debt was for (example: services rendered). Pro-Collect can help with the recovery of debts anywhere in Australia! We service clients in Sydney, Newcastle, the Central Coast, North Coast and New England areas of New South Wales. We treat all debtors, as well as clients with respect. We specialise in instant action! Pro-Collect charges no commission before collection, no hidden fees, and no legal fees! We can help manage and recover any size debt, whether large or small business debt. With Pro-Collect you will receive your own personal account manager. You will also have 24 hour online access to your account. Pro-collect proudly has over 35 years of experience in debt collection, and our team is ready to help you recover outstanding debt from your late paying customers.