How to collect a debt.
Most creditors wonder how they can collect debt, especially to collect commercial debt, prior to involving a debt collection agency or attorney. Unfortunately, even if every precaution is taken, debtors will still find a way to obtain credit and avoid payment. Having said that, there are several important steps that can be taken to help increase the likelihood of collecting bad debt.
The first step is to know that debtors are very familiar with collection laws and how creditors collect debt. They are familiar with the process because they are well practiced. They have usually been around the block a few times. Our experience shows that if a debtor owes one particular creditor, chances are good they owe dozens of others as well.
With this in mind, we recommending a creditor establish a detailed credit policy in advance as well as a credit application process. Most predatory debtors react adversely and aggressively when they’re required to complete a credit application in advance. A creditor must be sensitive to a debtor’s reactions to look for warning signs that may portend future trouble.
In order to collect debt, a creditor must first insist a credit application is completed and then they need to review and verify it. If something doesn’t check out on the credit application or if a creditor gets any indication from the debtor that they might not be credit worthy, the creditor should insists the debtor sign a personal guarantee or simply pay in advance.
Once the initial application process is completed, the transaction completed, and the creditor still finds itself with a delinquent account, there are more steps they can take to collect debt. The overall concept of how to collect debt , especially how to collect commercial debt, is to be firm and consistent. Part of the detailed credit policy should include the sequence of notifications and collection attempts in relation to time and intensity. For example, to collect a debt, a creditor might chose to send three written notices over a 30-45 day period, which are interspersed with phone calls and email collection notices. The policy might stipulate that at 60 days a final phone call is made prior to submitting the claim to a debt collection agency.
Another important issue with how to collect debt is that a creditor’s communication with the person he seeks to collect debt from should be direct, detailed, and then enforced. If a notice indicates the debt will be sent to a collection agency in two weeks, the creditor should ensure the threat is executed. Consistency will establish credibility, which will help in the collection process. If the debtor knows a creditor will carry out their threat and not redraw a new line in the sand each time a debtor defaults, there will not be a need for more posturing.
In the end, there is little magic involved in how to collect a debt. However, an established policy, firm resolve, and enforcing consequences will serve to collect debt efficiently.
Please feel free to contact us if you have questions about your credit policy or if you would like to discuss your particular collection needs and strategies.