Unfortunately, it seems that the first five years are critical every company’s life span. Staying solvent from early on is the most important thing for struggling business. Even when faced with bad debt, you need to develop a mechanism of dealing with collection of money from your debtors. It really can make the difference between your company’s profitability and failure.
How to Avoid Bad Debts
A non-collectible debt that occurs because of liquidation of a debtor company is called bad debt. You need to be extra careful about who you are doing business with in order to avoid ending up with debtors facing liquidation. Secondly, it is very important that you always list the due date on the receipt your company is sending. Some companies prefer to write notices like “Payment due upon receipt” and some give 15 to 30 days net periods.
Whatever your preferences are, due dates should be listed on every invoice you send. Unless you do so, the debit or company may file your invoice to a “low urgency” drawer and decide to pay in several months or worse. Having a debtor company contact is paramount, especially the contact of a person responsible for settling the debt. In some cases calling them can settle their late payments.
Professionals Taking Over
When pushed between a rock and a hard place, you have two options. One, you can collect the debt yourself and two, you can hire a professional debt collection company, which is what most big companies do. In the case of large debts, the latter solution is always more efficient. It varies from one company to another, but their share can go up to 50% of the debt sum. You will need to provide them with copies of your previous correspondence with the debtor, as well as inform the debtor that you are about to turn the debt over to professional agency.
Me, myself and I
If u choose to handle the debt collection by yourself, the first thing you need to do is call the debtor company and inform them that your invoice due date has expired. Try to make them reveal the reasons why their obligation wasn’t fulfilled, and ask about their plans for settling the debt. Provide them with several paying options and the possible interest that you will charge them unless they cooperate. It is paramount that you remain calm and professional during these calls. Above all, this is business matter, not a personal one. Unless they decide to pay, start with written correspondence and halt all the services your company is providing them. Keep all phone records and copies of written correspondence for eventual court hearings.
In some cases, the only way to collect your debt is to end up in court. Small claims court handles debts under $5,000. Before the schedule hearing, make sure you have collected all the paperwork. Alternatively, you can solve the case by mediation, if there is a dispute over the amount of money to be paid.
Naturally, the best way to avoid bad debts is to stay solvent. Always try to settle the debt professional, in a civilized manner, as any other option may cost your company more than the initial debt.
Author bio: Dan Radak is a web hosting security professional with ten years of experience. He is a coauthor on several websites and regular contributor to BizzMark Blog. Currently, he works with a number of companies in the field of online security, closely collaborating with a couple of e-commerce companies.