Many businesses encounter delays in payments by their customers. The debt creates a reduction in the cash flow and can hamper the growth of the business.
According to the Federal Reserve Bank of America, a whopping $412 billion of all American debt is seriously delinquent, meaning people haven’t made payments on their loans for more than 30 days.
Collecting debts from customers is tricky—be too lenient and the defaulter will keep delaying; be too strict and you would risk losing loyal customers who are just looking for some flexibility. Also, if you are too threatening, you might be overstepping and risk your reputation in the industry.
That’s why it is important to have a solid strategy for debt collection even before you kickstart your business operations.
However, debt collection tactics are limited due to the various laws regarding it. You need to keep some things in mind and follow established best practices of debt collection.
The Don’ts of Debt Collection
Here are key things you should not do when collecting your debts and top tips to help you navigate the whole process smoothly so that you are not found on the wrong side of the law.
Do not visit the defaulters’ workplace
It is illegal to visit the workplace of people who owe you money. They can file a lawsuit against you claiming harassment and you can be put behind bars.
You can definitely try to contact them at work and pay a friendly visit but make sure that you choose your words wisely.
None of your statements should give them a hint of harassment or threat.
Do not harass them
If you keep pestering your defaulters aggressively, they can file a claim against you. To avoid this, make sure that you stick to being decent and professional.
Avoid making repeated calls at odd hours incessantly (especially if you are warned not to), and giving them threats of violence.
Using obscene or vulgar language of any kind can also be seen as harassment.
Most importantly, do not publish information about their debts on public domains. Doing so can land you in serious trouble with the law. Just do not ever try to humiliate your debtors.
Do not add interests whenever you feel like
Most collectors get in trouble while trying to get back their dues because they add a fee or interest that was not a part of the original agreement.
So, let me tell you out loud, you are not allowed to do that.
In the original agreement that is signed by both parties, always include a clause that clearly states the terms about any extra fee or interest that will be charged upon the total payment if the customer misses making payments on their loans by the due date.
Do not lie about the amount owed by the debtors
Sometimes, business owners misjudge the situation horribly when they go to collect or report debt and they claim a higher amount than what was rightfully agreed or owed.
Trust me, in simple language, that is fraud. You can be sued and found guilty of fraud.
Never try to lie about the money your debtors owe you. If you do so, it can attract a lawsuit that in the end will be more troublesome for you.
The Do’s of Debt Collection
If someone or a business entity owes you money, you can adopt some of these measures to accelerate the debt collection process:
Seek payment on an expired debt
Like credit cards and medical bills, all unsecured debts have a statute of limitations. The statute sets a date after which you cannot legally sue the debtors.
However, there is no law that stipulates you cannot go after the debtors to seek payment on these old financial obligations.
It is within your rights to seek payment from the defaulters even after the statute of limitations has expired.
Give the required push to the debtors
While you are prohibited from threatening and misleading your debtors, you can definitely apply some pressure upon them to retrieve your money.
You can schedule regular emails to constantly remind them of their dues. However, if nothing seems to work out, you can consider legal action and warn them about it.
Hire debt collection agencies if necessary
There are third party agencies that can handle debt collection on your behalf and effectively help you realize payment. Reach out to them and make sure you pick the one with a good reputation and high success rates.
Debt collection agencies typically charge you on a percentage basis of the amount recovered, taking responsibility and all necessary steps to retrieve the payment in full.
Don’t worry they are completely legal and operate within the rules and regulations of the country. You can research the services and read blogs and other resources to get a full understanding about how these debt collection agencies operate and function.
Sell off debts
In case you are not able to collect a debt, you can resell it to some other business or firm. It is completely legal to do so.
Selling off your debts will reduce your headache of engaging in constant discussions and back and forth with adamant customers who refuse to pay off their debts. If the amount has been paid partially, you can still sell off the rest of the debt.
Now that you are aware of both sides of the do's and don'ts, you are more adept to walking the tight rope of debt collection. All the best collecting your debts.