Debt Collection Techniques

By: Jim Kesel

Account receivables (AR) and collections are a part of business that no one really enjoys. Debt collection techniques that are effective in making collections can save money, stress and time. Bad business debt if not dealt with efficiently can threaten a small businesses survival.

Making collections in house can be time consuming and in many cases not effective. Sending additional invoices to AR accounts that are more than 60 days old is frequently a waste of time. Calling businesses and individuals directly can be effective if you have an effective collection script to follow during the contact. Many small business owners are uncomfortable in making collection phone calls. In general do it yourself collections are not all that successful.

Sending a pre collection notice to a past due account can be effective if done correctly. A business that sends a collection warning under the business letter head is in general not as effective as using a collection agency mailing. However using your business letterhead and stating that the AR debt is going to be turned over to collection agency xyz is one of the more effective debt collection techniques. Using a well known collection agency with name recognition will add leverage to your collection effort.

If these debt collection techniques are not effective then you will have to consider using a collection agency. Regular collection agency fees can be expensive and frequently require large upfront fees prior to beginning any collection efforts. In addition all collection payments are sent to the collection agency. Frequently the collection costs will mean that a business may only recover 20 percent of the AR debt.

Online debt collection agencies may be one of the better debt collection techniques available today. If Your business is a business to business (B2B) then online collections can be very effective in making collections on AR that are less than 90 days old. These agencies are relatively inexpensive to use and give the business owner more control over the collection efforts. Frequently you can make application for assistance on line. Once accepted all you need to do is upload your delinquent AR information to the collection agency data base. Fees are based on each contact that is made.

A collection letter in many cases costs less than $8.00 per mailing. Getting a collection letter from an online collection agency will in most case result in a payment. All payments are made directly to the business. Once a payment is made then the business owner removes the AR debt file from the collection agencies data base.

Additional debt collection techniques that can be employed include selling your past due AR debt to a collection agency. Depending on the age, amount and type of AR debt you may be able to recover as much as 50 percent of the AR debt. It pays to contact several collection agencies to find the best deal. You can also consider writing off old AR debt and use it as a tax break. You will have to contact your CPA to find what types of debt can be written off prior to considering using this method.

These debt collection techniques are available to just about every type of business. Unfortunately every business will have past due account receivable debt that cannot be collected no matter what method you use. Bankruptcy, recession and changing economics are just some of the reasons. Each business will have to make a decision as to what types of debt collection techniques to employ. Good techniques will help to ensure that your business is successful.

Debt, Loans & Business Cashflow
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