Many small businesses maintain an informal relationship between customers and other businesses in the area. A “put it on my tab” mentality often helps the small business build network connections with customers and other local businesses in the area.
However, the time may come when the small business needs to collect on outstanding debts to help tie up loose financial ends. This is known as “debt collection” and is a vital aspect of any small business operation.
Debt collection usually isn’t a problem for small business, since many of the clients and business contacts understand how this works. On the other hand, debt can be a problem if the borrower is refusing to pay. Debt collection also becomes a major aspect during wind-up phases when dissolving a small business.
There are several different approaches for a small business that wishes to collect on debt payments. Depending on the relationship with the borrower, it may be necessary to try different angles, especially if the borrower is unwilling to pay or simply doesn’t have the funds to pay.
For starters, some ways to collect debt may include:
- Writing a polite letter or e-mail: This may help remind the party that they owe you money or services. Often times they have simply forgotten that they owe you
- Making a phone call or sending a text message: This can be useful as a follow-up to a letter or e-mail
- Creating a repayment contract with the borrower: This can help get repayments started without demanding too much at one time
At this point, the most important thing is to avoid harassing the borrower, as they are valued contacts whose business and connections are very important.
If the borrower still will not pay, it may be necessary to take more direct measures. These can include:
- Hire a collections agency
- Offer to settle at a lower payback price; consider forgiving a portion of the debt or not charging interest on the amount
- File a Lawsuit: This may be a last-ditch effort, but may also be necessary at the outset if there’s a direct legal violation involved
Debt collection agencies are businesses that specialize in contacting parties on behalf of a business to collect debt payments. They are professional services and can often be useful for a business as a go-between with the other party. They can help avoid confrontations between the borrower and the lender.
Finally, you should also understand that filing a lawsuit won’t necessarily destroy your relationship with a client or business. It may simply be the case that clarification is needed for a financial figure or for a certain law in the area. This can be resolved through the legal process and the court system in the area.
Debt collection for small businesses can sometimes get complex. If you’re facing any legal issues or concerns regarding debt collection for your business, you may wish to contact a business lawyer immediately. Your attorney can assist you by showing you your various options under the laws in your area. Also, if you need to file a lawsuit or work with a debt collection agency, a qualified attorney can provide you with guidance and representation during the process.