More than 50% of all startups fail in first few years of doing business. Inability to collect debts is one of the major reasons that leads startups to bankruptcy, because for business to function well, companies require constant money flow.

Since debt collection is such a hard and an unpleasant experience I’ve listed some of the most effective strategies that can help entrepreneurs to recover their debts and make their business lucrative again.

Determining Payment Policy

Each contract made for the purpose of selling goods or services should contain payment policy that determines schedules, ways and amounts customers are obliged to pay to goods or services providers. Different payment policies might include measures that should motivate customers to pay their debts on time. These special measures might include:

  • Late-payment fees– fees that are added to the debt amount when debtor doesn’t settle the debt in agreed time. Regular late-payment fee range from 1% to 3% of the whole debt.
  • Advance payment– companies can ask their customers to pay up to 50% of their debt up front.
  • Interest– interests are added to the debt amount after customers fail to pay their debt in agreed time. Debt interests are regulated by federal and state laws, which means that companies first need to consult the law before adding that article to the contract.
  • Due dates– contract and each bill that’s being sent to customer needs to contain due dates, after which late-payment fees and interests are being added to the debt amount.

Staying in Contact

One of the main strategies to make customers paid their debt is by maintaining constant contact with them. Debtors should be contacted by several different ways:

  • Reminder bills– these notes remind customers that their debt is past due date.
  • Phone calls– this way customers should try to get a verbal agreement and a new due date, until the debt is going to be settled. When calling debtors, company officials should avoid phone harassment, they should also talk in civil tone, identify themselves, and state the reason for calling and their desire to keep positive relationship with the customer.
  • Demand letters and e mails– these letters should have a more demanding tone (but shouldn’t sound threatening) and should present next steps company will do to collect the debt.

Negotiation

Secret of successful debt collection is in understanding debtor’s situation and that’s why negotiations with debtors are very useful. Here company officials can offer discounts and longer deadlines. Although most people think that this way the company is losing its money, it is much smarter to make these exemptions and never deal with debtor again, then to continue with debt collecting routine and settle in court, which also comes with its share of costs and lots of uncertainty.

During negotiations company officials also need to inspect the possibility that the debtor will declare bankruptcy, which can cause plenty of legal troubles and requires hiring a lawyer or debt collecting agency.

Hire Professional Debt Collectors

This is probably the most certain and the easiest way to collect debts. Sure agency will take its share of the money, but this will cost much less than a court settlement or some other similar arrangement. Sometimes choosing a debt recovery agency is not that easy. When doing that, company management needs to check these things:

  • Whether the agency is licensed;
  • Whether it is bonded and insured;
  • How big are the fees and in which way do they charge them;
  • Whether agency is offering debt portfolio screening;

All these determine the agenci’es profile, and for most debts, agencies charge fees after the settlement, which in some cases means that company can get their share of the money right away.

The only strategy we didn’t mention in previous paragraphs is the customer and business partner screening, which tells the company how responsible they are when it comes to debt payments. This can prevent many invoices turning into bad debt and it is especially important for B2B deals. If even with these precaution measures you end up with unpaid debts, the above mentioned strategies will make collection much more easier and less stressful.

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