Best Ways to Collect Debt (Besides Factoring)

 September 2021

The hardest part about running your small business might be collecting money from customers who pay late. This headache of trying to collect what is owed to you can cause extra stress you don’t need while possibly ruining your business. It can also cost you time while you should be doing other things to run your business. This article should give you some ideas of how to get the money you are owed from your debtors.

First, rather than waiting until an invoice is past due already a problem, try sending them a reminder that they are coming close to being overdue before the due date is up. This way you don’t look like you are harassing them for a payment, and you still get the message across that you need your payment on time.  

If the reminder doesn’t work, you should never feel ashamed to make a collection call. After all, you agreed to provide them a product or service by a certain date, and you fulfilled your end of the deal. Your customer agreed to pay you the invoice amount within a certain time frame. If you’re making a collection call, they obviously broke their agreement with you. Further, that money represents the payroll you owe to yourself and to your employees (and by extension, all of your families). It represents the rent you owe to your landlord and the vendors you used to fulfill the customer’s order. Your company deserves to get paid t is your responsibility to collect it.

When making a collection call, there is no reason to be anything but polite. Most late paid receivables are caused by simple misplacements of the invoices as they move through the customer’s payable system or errors you made when creating the invoice (forgot to include PO number or calculated the invoice amount wrong). Therefore, most such calls end up fixing whatever minor problem caused the delay. However, when everything is fine with the invoice, but the customer is either ignoring you or telling you that they don’t have the money to pay you, you should follow these steps:

1. Again, be polite. Yelling at the customer isn’t going to magically create the money for them to pay you. Believe me, it’s been tried. So at this point, the customer must send you whatever they can afford today, and pay the balance over an agreed upon time period. If they can’t send anything now (or relatively soon), tell them you’ll need to move to Step 2. If they can pay something on the past due debt, feel free to continue working with the customer, but only if they pay you in advance.

2. For small to medium debts, you should turn the receivables over to a debt collection service if your methods of collection do not work on your own. At this point, you no longer will be doing business with the customer.

3. If the collection service can’t get any payments, the final step is to take your debtor to court. This must be your last resort as the judge will need to be satisfied that you’ve used all of your other options before they can start litigation. This is also the more expensive way to go as you will need to hire a lawyer and pay for the case costs. If the amount owed to you is substantial, it may be better to skip Step 2 and go right to litigation. Time is your enemy so the sooner you seek and enforce a judgment against the customer, the better.

One way to avoid these situations is to factor your invoices with Sterling. We will perform financial analysis and run credit reports, so you extend credit only to those customers that have the ability to pay you on time. We also take care of collecting payments from your debtors. If you are interested in our invoice factoring program, call us at 810-229-2601.