Most businesses have encountered at least one customer who is having trouble paying what they owe. It is just part of the business landscape. With the way the economy has been, there may be more customers that are having more trouble than normal paying back their debts.
If you are in the type of business that extends credit to customers, then you are officially in the business of collecting debts. At times, debt collection can put your company in a tight situation. Before long, you may find your debt collection effort to be difficult, time-consuming, and financially draining.
You have to remember that no matter how much these customers owe you, they are still your customers. How you collect debts from them will always be a reflection on your company. The first thing you should consider is which type of late-paying customer you are dealing with.
The Absent Minded Customer
These types seem to always forget when their payments are due. They say they will pay you next week and when next week comes, there’s no payment. Paying you may not be at the top of their priorities, or they may just completely forget you. Either way, you have to always be there to be a constant reminder via letters or calls. Let them know the consequences of forgetting your payment or not paying on time.
The Browbeaten & Broke
These types may genuinely want to pay you, but have absolutely no means to do so. You call them up and they tell you how they have hit rock bottom financially. The best thing to do with these people is to find creative ways to get paid, like implementing a payment plan. Show them that you are willing to work with them and have them commit to the plan. You are more likely to get paid by being nice to these customers.
The Chronic Delinquent
Before dealing with any customer and extending credit to them, have at least an idea of how they behave as debtors. Pull credit reports on your customers and avoid the chronic delinquents. The best way to deal with these types is to avoid them as much as possible.
These are the customers that appear to be upstanding citizens, but then disappear when the payment due dates come. You have to recognize these kinds of customers early on to avoid frustration. When you encounter on, the best thing to do is to call in the professionals.
Determining the type of customer you are dealing with is just the first step. After that, there are a number of tips and tricks you can employ in collecting debts. Here are a few of the most popular debt collection tips:
Determine Just How Valuable the Customer Is
Before you do anything else, decide if the customer is worth bending over backwards for. Take into account the lifetime value of the customer and strategize from that.
Be Reasonably Persistent and Professional
Don’t be a threat to your customer, no matter how much you may want to yell at them out of frustration. Maintain a professional demeanor. Remember that calling the debtor more than once every few days may be considered harassment.
Don’t allow too much time to pass without contact. Be creative and send regular reminders via phone and email or mail. Write reminder letters and, if necessary, demand letters that escalate in intensity.
Know How To Handle Excuses
Fight the temptation to get upset over a lame excuse. The best collectors out there believe that you can catch more flies with honey. Be smart with the excuses and counter them with an alternative.
Leverage with Credit Scores
As the creditor, you have the ability to put a black mark on you customer’s credit report. You can use this to warn your customers and it may just get your debtor back to the table.
Discuss the Debt Face-to-Face
Arrange a time and neutral place to discuss the debt situation. Create an atmosphere where the debtor can feel comfortable instead of threatened. Have a respectful discussion and make the customer realize that you have a mutual desire to have the debt settled.
Be willing to be creative with the payment terms. Sometimes that is all it takes in order to get paid quickly. Offering your customer multiple payment options will show that you are willing to be flexible and you might find something that works for the customer. Keep in mind the possibility of being paid through trade.
Turn it Over to the Professionals
This is the last resort. Collection agencies will be happy to take up the collection effort for you in exchange for a portion of the amount collected. When you get to this point, it’s often better to receive a portion of the amount owed than nothing at all. Since a lot of debt originates in California, you might want to hire a debt collection agency in California.