When you own a small business, nothing is as important as your bottom line — and when clients or other parties owe you money, it can significantly impact the success of your business and your cash flow. While small businesses may not have the same resources as larger companies and corporations to collect a debt, there are still a number of strategies you can utilize to enhance your debt collection strategies.
Here are several debt collection practices to implement in your small business:
In some cases, clients may not have made payment simply because your invoices may not have specified that payment is due within a certain number of days. Be sure to include an invoice date, the contact information for both parties, and the payment terms on your invoices. You should also specify what payment methods are accepted, along with an itemized list of the goods or services you provided. In addition, as part of your debt collection strategies, you might want to reconsider how often you bill clients — depending on your cash flow, you might send invoices monthly or bimonthly.
If you’re using excel spreadsheets or Word documents to generate invoices, you may think about shifting your practices to using new invoicing technology. By using certain types of technology, you can minimize the risk of error, save time, and be more efficient in your invoicing practices. These programs can also deliver invoices automatically and follow up regarding unpaid invoices.
Sometimes, late payments can be due to a small business’s payment process. If the procedures are confusing, clients and other businesses may simply push off making payments. Streamline your payment process by establishing clear procedures and offering different payment options, such as credit card payments, online payments, or check.
Every small business has at least one client who is consistently late in their invoice payments. This can place a burden on your cash flow. While you might make exceptions for some clients and extend the payment terms, you may sometimes need to implement stronger debt collection strategies and penalties for late payments. In addition, you might want to offer stronger incentives for early payment, such as an early pay discount. It’s best to follow up immediately with clients concerning any late payments.
Small businesses that are conducting business with another entity should do their diligence before entering into any contract. For instance, it’s a good idea to look into a company’s debt history and identify any warning signs that indicate there will be a problem with getting paid in a timely manner. You should also conduct a reference check to learn more regarding how the business handles accounts.
When you’re attempting to collect a debt that is owed on a past-due account, you should record each collection attempt. As part of your debt collection strategies, it’s essential to keep good records of each date you contacted the client, including details about the call or other type of collection effort. Retain copies of all payment reminders, past due payment notices, final notices, and demand letters. In the event it is necessary to take legal action, these documents can serve as crucial evidence in your case.
In certain situations, the best option to collect payment is to enter into a settlement with the client. If the client or other company with whom you are conducting business is not financially capable of paying the full invoice amount, offering to settle for a small amount can ensure you collect at least some of the debt owed. You may also consider agreeing to a payment plan to collect the debt over time.
Small business debt collection strategies can include sending reminder emails, making phone calls, sending demand letters, and negotiating. But if all else fails when it comes to collecting a debt owed to your small business, you might need to consider hiring a debt collection agency, using the small claims court process, or filing a lawsuit. While each method can result in your business incurring additional expenses, the cost may be well worth it depending on the amount you are owed and the likelihood of success in collecting it.
However, it’s just as important to know what types of actions you legally cannot take to collect a debt — the Fair Debt Collection Practices Act imposes strict communication guidelines. It also prohibits collection practices that constitute harassment. It’s a good idea to consult with an experienced business attorney when it comes to the debt collection strategies you should implement.
If your small business is facing debt collection issues, a knowledgeable Illinois business law attorney can help you implement effective debt collection strategies. Located in Rolling Meadows, Litico Law Group serves the legal needs of small businesses, LLCs, and corporations throughout Illinois for a wide variety of business matters. We welcome you to contact us or give us a call at 847-307-5942 to schedule a consultation to learn how we can assist you.