Cash Flow Problems? Use These 3 Debt Collection Techniques To Increase Your Bottom Line
Effective debt collection techniques are necessary for any business, regardless of the economic climate. Knowing how to get your customers to pay their past due debts on time will increase your cash flow. After all, running a business, you have your own debts to pay. Absent an adequate cash flow, you risk falling behind on your own obligations, which leads to problems with suppliers, and/or loss of easy credit terms with your bank or lender.
Mastering these debt collection techniques often spells the difference between barely staying afloat, or thriving in your business.
Here are the top 3 debt collection techniques to improve your business cash flow:
1. Change Your Payment Terms
Make sure you’ve clearly stated on your invoices, and any quotes you’ve provided, what your payment terms are. Most businesses allow 30 to 60 days before payment is due, but have you considered reducing your payment terms to 14 or 21 days?
Amending your payment terms might mean the possibility of getting your money sooner rather than later. Also, it means that an unpaid account becomes delinquent earlier, and within a month. You can then commence with collection activities before more time has passed.
2. Written Reminders & Follow Up Calls
Once an account has become past due, you can issue a written reminder to the customer to gently encourage them to pay their bill to your business. You need to be very careful with the wording you use in your debt collection letter, as the laws surrounding debt collection techniques are quite specific. Sending a written correspondence means you have a record of your attempts to collect the outstanding debt in case of future issues arising.
You should also call the customer to remind them of their outstanding debt, as well as establish a time frame when you should expect payment. Again, your choice of words and overall communication needs careful consideration, to avoid the appearance of harassment.
Under the Fair Debt Collection Practices Act (FDCPA), debtors are afforded certain protections. Make sure you follow these laws and guidelines, whichever methods of contact you choose.
3. Outside Collection Agencies
Sometimes, in spite of all your efforts, some of your customers won’t pay their debts. In spite of the fact some of your customers might be experiencing financial setbacks, this doesn’t help your business if they’ve already received goods or services from you in good faith, and now are unable to pay the bill.
When you’ve exhausted all other internal avenues of debt collection options, then its time to call a third party collection agency to pursue the past due balance for you.
Collection agencies are experts, and very experienced in this area. It also means they’re knowledgeable of the the laws and regulations governing the debt collection industry. They will act on your behalf, representing your business, to collect any past due payments owed to you. The debt collection techniques they use are designed specifically to bring positive cash flow back into your business, sooner rather than later.
David P. Montana has written, taught and worked as a business consultant on the area of collection agencies for three decades. David would like to hear from you, and encourages you to write about and tell your success stories, as well as challenges, frustrations and concerns with debt collection techniques.
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