Business Guide to Collections

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Helpful guide for business on how to handle overdue accounts, provided by the Better Business Bureau.

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  • Business Guide to Collections

    1. 1. Guide to Collections Brought to you by the Tri-State B etter B usiness B ureau
    2. 2. John has recently started his own home repair business. He completed a job for the Jones family two weeks ago and has yet to receive any response to the invoice he sent to them.
    3. 3. This delinquent account is having a negative impact on his business’s cash flow, but John is still uncertain about how he should proceed. He doesn’t have a collections policy in place.
    4. 4. Cash flow is the lifeblood of a business, and an effective collection policy is essential to keeping the money rolling in.
    5. 5. Use it or lose it . It's a fact: The longer you wait, the less money you'll collect. Begin your collections procedure as soon as you notice a delinquent account. Start calling customers the day their invoice becomes past due, and call them every day until the bill is paid.
    6. 6. Send a letter . Develop a template for each letter so you can easily fill in the blanks and send it out when an invoice is 30, 60 and 90 days past due.
    7. 7. You should have a series of letters to send to deadbeat clients, each one becoming a little more insistent. Here are some ideas for a five-letter series. <ul><li>Don't make your first letter look like a collection letter at all. Make it a friendly note. You're more likely to get money from someone who thinks of you as a partner. </li></ul><ul><li>If that first letter doesn't get a response--and usually it won't--send another the next week that's more urgent and directly asks for the money. </li></ul><ul><li>The next week, if you still have not gotten a response, send a letter referring to the payment terms in the agreement you and the client originally made. </li></ul><ul><li>Still no response by the next week? State plainly that you are asking for the money for the final time before referring it to collections. Include a copy of the entire agreement between you and the client. </li></ul>
    8. 8. 5. If you still have not heard back from the client, and are confident that you do not simply have a problem with their contact information, call a collection agency. If you'd rather be writing proposals than collection letters, there are small business collection agencies that will take on debts for as little as $20 each. Such companies are typically paid on commission -- usually around one-third of the collected amount, though rates vary.
    9. 9. Bend, don't break . If a good customer is occasionally late with a payment, be flexible. Do continue to call them to request payment, and set up a payment plan if necessary.
    10. 10. If one of your debtors files for bankruptcy: Consult a lawyer immediately and stop all collection efforts. Depending on the type of bankruptcy, you may still be able to recover some or all of the debt.
    11. 11. Whether you are looking to improve your existing strategy or starting from scratch, consider the preceding tips for implementing a successful policy. And Remember, even the best policy is worthless if you don’t follow It then necessary.
    12. 12. This presentation was brought to you by: The Tri-state B etter b usiness b ureau. www.evansville.bbb.org 5401 Vogel Road Evansville, IN 47715 812-473-0202 or 800-359-0979

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