Improve your collective knowledge about collections

The moment you have been scared is here.You provide polite customers Trade credit in the form of net terms (E.g. net 30 days) Delay in payment. In fact, they came too late and it’s time to start thinking about your debt collection options. This may be the worst situation for business owners and customers, and both parties may want to avoid this situation.

This dilemma is especially troublesome for small businesses like manufacturers that rely on maintaining valuable relationships with customers (such as sellers). Sometimes this kind of partnership dates back many years and is difficult to obtain, and may even bear the additional burden of personal friendship. These emotional factors make the prospect of debt collection more tense and risky.

If you feel that you have no choice but to collect debts, then you should have the right knowledge about the debt collection process. Debt collection is a very serious matter. Mistakes in this highly regulated process may result in expenses or legal penalties for your company. Before starting this process, consider improving your collective knowledge of the collection.

Understand the law

First of all, you should abide by the legal provisions during the debt collection process.enter Fair Debt Collection Act (FDCPA). Most notably, the bill protects consumers from harassment by debt collectors. However, it has not technically applied its protective measures to corporate debt. Credit cards, student loans, auto loans, mortgages, medical bills, and other household debts are protected by the Act. If their customers belong to the category of small businesses or sole proprietors, many companies will also choose to follow the general principles of FDCPA.

FDCPA may not cover Original creditor Who is the consumer owed? That being said, some best practices related to FDCPA may be worth following. Doing so helps to maintain your business reputation and some goodwill with the debtor, for example, don’t harass the debtor day and night because of the debt. It is also worth reviewing the specific regulations of your state regarding debt collection to ensure that you have not violated any laws.

Beware of the legal risks of the collection

If you decide to collect, you can choose to outsource this task to a debt collection agency, which will cost you extra money. FDCPA identifies collection agencies, debt buyers and lawyers that specialize in debt collection as debt collectors. Another option is to sell the debt at a partial loss to a company that buys overdue debt and then strives to recover the debt.

Business-to-business debt is often referred to as commercial debt. Although FDCPA does not provide protection for commercial debt, the Commercial Collection Agents Association (CCAA) has established regulations that commercial debt collection agents must comply with. In order to reduce the risk of the debtor taking legal action, you may wish to cooperate with a debt collection agent of a CCAA certified member. Members must abide by certain ethical standards in order to give you peace of mind.

Avoid providing terms to high-risk customers

One way to protect your business from the collection process in the future is to be more conservative or smarter in providing net terms to customers (especially new customers). Understand that providing net terms will essentially turn your accounts receivable department into a finance company. The first step in financing is to determine the customer’s creditworthiness. Doing so may involve processing credit applications, conducting credit checks, or obtaining financial information and reference materials for due diligence. After approving the application, your team needs to negotiate and write a credit policy. All the time, you will manage customer expectations and relationships.

Please consider this before going out

If you find that your business needs to collect debts, then the expensive option of hiring an external collection agency or contractor seems worth it. This is especially true if your employees work hard to complete their work, waste valuable time and energy, and expose you to costly legal errors.

In addition to the costs involved, transferring your overdue accounts to a third-party collection agency may affect your relationship with some sensitive customers, because the collection representative is compared to you (their known business partner) Cold and pragmatic. You may need to think twice before giving up your personal style.

Before resorting to collections, some companies will consider Factoring Get payment for unpaid invoices immediately. Through factoring, a third-party company will purchase your unpaid invoice at a percentage of its value (usually between 10% and 20%, if the invoice is overdue, it may be more, plus any additional fees and charges).

Of course, factoring has some serious shortcomings. You will never get the full value of the invoice, and your customers may be confused when contacting the new company, and may even doubt the stability of your own business.

In order to minimize the impact on your cash flow while waiting for customers to pay invoices, please consider using the Fundbox line of credit, which allows you to withdraw short-term liquid cash based on the expected income of outstanding invoices.

Disclaimer: Fundbox and its affiliates do not provide financial, legal or accounting advice. This content is for reference only and is not intended to provide and should not be used as a basis for financial, legal or accounting advice. You should consult your financial, legal or accounting advisers before making any transactions.