Anybody who has tried their hand in business understands how problematic collecting a debt can be. If you are not familiar with debt collection, you will most likely face some issues as you try to get your money back from your non-paying clients. In the worst-case scenario, you even end up losing more money because they sue you for bad business practices (which we will discuss later).
To better understand what you should do to collect a debt successfully, let us show you the top errors that business owners make when collecting debts.
1. You failed to screen your client properly, and now he (or she) can’t pay you back.
All businesses need customers. However, that doesn’t always mean you can do business with everyone, especially if you offer credit.
Businesses tend to offer credit when they are just starting to get clients to come back and stay loyal to their products. It’s a risky way of investing in your potential customers; you allow them to take your goods or services with the promise that they will pay you later. This can reward you with free marketing through word of mouth from happy and satisfied clients if done right. However, it can be taken advantage of, and when that happens, you lose credibility as a business while also losing money.
You do a careful assessment when selecting a dentist for your tooth issues, choosing a car shop for your hitch installation, and picking out a restaurant for dinner. It’s only natural for you to lessen business risks by properly screening a client before offering credit. A simple background check can give you hints if the customer has the financial capability to pay you back, and you can also ask credit institutions about them to learn about their financial behaviors.
2. You have no idea how to tell a client that he (or she) needs to pay you back.
It’s not just business owners, but people, in general, can feel uncomfortable asking someone who owes them money to pay them back. While there isn’t a guaranteed approach when talking to a customer about a pending debt, there are multiple ways you can try to secure your payment depending on the attitude of the customer.
For example, if the client seems responsible enough but was just caught in a bad financial situation, you can try to empathize first. Acknowledge his (or her) reasons for missing the payment, and offer to extend the payment period as a courtesy if necessary. This way, you are also showing the client that your business relationship is stronger than monetary values, and you might win him (or her) over as a loyal, long-term customer.
On the other hand, things can also go south if the client perceives it as you not needing the money, which is why you are okay if he (or she) will take longer to settle. When they don’t feel an urgency in the situation, they might abuse your kindness and keep asking for extensions. Ensure that you stay firm in your stand and demand for the payment to be made if ever you feel that the client is trying to pull one over on you.
3. You have watched too many action movies involving debt collection.
On the other side of the spectrum, you might have watched too many movies wherein the business owner aggressively pursues the customer, threatens him into paying the debt, and beats him up regardless if he does or not. While you probably know already that you can’t use violence to collect money, being too aggressive in approaching the client can be just as bad.
Acting overly aggressive on a client, despite any circumstance, can significantly hurt your business. If you lose your temper because of a client’s sarcastic approach regarding his (or her) debt, only you will be negatively affected. Your brand’s reputation will suffer from the publicity, and if the customer files a case, you end up losing more money in attorney fees and court dues even if you win. Adding insult to injury, the government can also free the customer from any financial obligations if the court rules that you did harass him (or her).
Debt collection can be challenging and stressful, regardless of how long you’ve been running a business. Sometimes, the best option is to hire a professional collection agency that can efficiently solve your problem for you. Paying extra in exchange for losing all stress and worrying that comes with debt collection is well worth every penny, especially considering you will be getting your money back for sure.
