A client isn’t paying? Given up on some accounts-receivable? Congratulations! Being stiffed is a milepost in the growth of any business. There are always going to be customers who, for whatever reason, won’t pay their bills. Here are a few ways to collect the money that’s yours:
1. Take immediate action
Unlike wine, bad debts do not improve with age. The longer you hold debt, the more difficult it becomes to collect, says Charles Miller, president and CEO of Pickering, Ont.-based collection agency RecoverCorp. So, pick up the phone immediately after the first missed payment and ask the client politely to correct the payment “oversight.” If they say the cheque is ready, offer to send a courier to pick it up.
2. Send a registered letter
A registered letter creates a record that could be useful if you are forced to go to court. In the letter, be firm but flexible in your repayment terms; it’s fair to assume that both of you want this situation to end.
3. Be nice
You may be angry, but being polite encourages debtor cooperation. Collection agents at RecoverCorp. always take a calm, respectful tone, says Miller. “Frankly, people are more intimidated by calm,” he says. If you threaten, “you lose control of the conversation and you lose the respect of the person. You just have to state the facts.”
4. Be realistic
Try to assess your debtor’s assets. If the company is pleading poverty and you believe it, then you may want to accept a percentage on the dollar or alternative remuneration such as goods or services. That said, don’t bargain too readily, or you risk sending a message that you are open to negotiation and the debtor may try to pay you even less or take longer than he would have otherwise.
5. Calculate the cost in time
Even if you have an employee track down the debt instead of doing it yourself, it’s costing you something – time or money. Think about the value of the debt, and whether it’s worth what it’s costing you to retrieve it.
6. Engage a collection agency
The reality that a debt has been turned over for collection may jolt the deadbeat into paying. But more often than not, says Miller, it’s learning about the repercussions of non-payment from a collection agent that does the jobÃ¢Ã¢¬Ã¢¬that is, the prospect of the non-payment record being sent to a credit bureau, where it could influence the debtor’s chances at getting a loan or securing new business. Most collection agencies work on a contingency basis, says Domenic DeCicco, vice-president of Toronto-based Collection Group of Canada. You’ll pay the agency 25% to 40% of the debt collected; if it fails, you pay nothing.
7. Use a mediator
Sometimes clients don’t pay because they believe they didn’t get what they paid for or they think the bill is incorrect. If you can’t come to an agreement, then consider hiring a mediator or dispute-resolution expert. You may even want to include in your sales contract an arbitration process that would determine liability for payment of a product. “So the consequences of unpaid debts would be clearly understood by both parties,” says Robert Bales, an Ottawa-based dispute-resolution practitioner.
8. Avoid getting stiffed in the first place
Start with an accounts-receivable policy that mandates that various things happen at different stages of the receivable. At 31 days past due, make a reminder call; at 61 days, call with a 10-day warning to send the receivable to a collections agency at the 90-day mark. Finally, be sure to research potential new clients diligently. You might not like what you find out, but spotting a deadbeat before you strike a deal with one is surely better than the alternative.