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Is there a right way to collect debts?

Wednesday June 05, 2019

Is there a right way to collect debts?
For many businesses, collecting debts can be one of the most difficult functions. If you or your collections staff are too friendly and understanding, your business could go bankrupt or at the very least, suffer cash flow problems. If you’re too strict you could lose good customers who need some flexibility, and if you’re too aggressive you could end up being sued.
Invoicing promptly and polite, yet regular reminders will certainly help your business have a healthy cash flow. But what do you do if a customer still defaults on payment? At what point do you take more serious action or hand the account over to a collections agency?
Play it safe
If you need to collect on outstanding debts, it’s best to follow the stages of debt collection, which outline what to do based on the length of time the debt has been in default. Otherwise, it’s always best to play it safe rather than risk alienating your customer.
1.     Practice due diligence
Before offering credit of any kind, perform a thorough credit check. If you do decide to offer credit, make sure that this is appropriate. Other ways to prevent outstanding debts include releasing goods only when payment clears, offering early payment discounts or sending invoices as soon as the job is complete with easy payment options and conditions.
2.     Ensure communications and expectations are clear
Make sure that your contractual agreements always outline the responsibilities and expectations of both parties, as well as any additional fees and interest charged on outstanding debt. Send timely reminders to your customers and make sure you highlight the additional fees charged as per your agreement. Most customers realize that interest mounts on delayed payments, and will quickly pay up if their outstanding debt is merely an oversight.
3.     Show respect and understanding
Always be respectful to your customer in every communication. Don’t call at unreasonable hours, or send increasingly frantic and threatening mails. Follow the process and be willing to be flexible and understanding of the debtor’s unique situation.
4.     Demonstrate an ethical approach
Always strive to keep your customers informed of their options. Don’t alienate a customer by not crediting their account immediately upon payment in order to add more fees and interest, or, for example, sending out fake legal letters, confiscating property or informing the debtor’s employers or co-workers. Make sure your conduct is irreproachable.
5.     Be honest and transparent
It’s important to be transparent and to record all information. Never threaten to report your customer to the credit bureau unless you intend to do so. Some companies have even gone so far as to make false threats about suing the debtor or calling the authorities for non-payment. Rather inform customers of your process and warn them that if the debt remains unpaid after 90 days, you will have to report them to the credit bureau in line with your company’s procedure (outlined in the contract).
6.     Know your rights
Make sure that you know your rights by consulting with a lawyer.Many solicitors will provide advice for free or will only charge you the cost of writing up a lawyer’s letter. In many cases, this can be all that is needed for your customer to pay up.  Always ask for costs up front, as in some instances the fees can outweigh the money to be reclaimed, especially if you think the process of reclaiming this debt may be a lengthy one.
7.     Engage a reputable debt collection agency
A debt collection agency will handle all correspondence and legal processes on your behalf, which can take a huge burden of your shoulders. Most agencies work on a "no win, no fee” basis, but might charge a large commission if successful.Before hiring any debt collections agency, do your research to make sure they take compliance seriously. If you don't find the right agency, you could end up being sued for something your debt collections agency did and it’s likely you’ll never be repaid the original debt.
Remember that you can be assertive and professional without being aggressive. Your relationship with your customer is a contractual one. They asked you to provide a certain thing or service by a specified date and agreed to pay you for that product or service by the specified date. If you both agreed to this and signed the contract specifying these terms, you are within your rights to follow up, as your customer would if you hadn’t delivered.
By maintaining a professional and courteous approach and following a structured, consistent debt collections process, your customers will understand and respect this process. If you need to issue a complaint, you will have clear records of the actions and events that have taken place, as well as the process followed in order to collect.
SCORE helps businesses predict which accounts are most likely to collect, which helps you develop targeted and effective collections strategies that maximise your account receivables. Contact us today on 647.309.1803 to get the conversation started.   

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