Many entrepreneurs make the mistake of prioritizing profit over cash flow. Under the right circumstances, it's possible for a profitable business to go bankrupt. In fact, there were nearly 384,000 business bankruptcies in 2022.
This often occurs when a company doesn't have enough money to pay financial obligations like commercial debt. If you've been struggling with business debt collection, there are certain strategies you can implement.
We've put together a guide to help you streamline commercial debt collection and get back on track as soon as possible. Let's look at the key details you should know.
This is one of the most important business debt collection strategies you can use. Maintaining open lines of communication with your clients can substantially improve debt recovery rates.
Even something as simple as a payment reminder can minimize unpaid debts. Using automated software can streamline this process.
If a client misses a payment, reach out to them as soon as possible. Emphasize that you're willing to assess their situation and see how you can help.
There should be no confusion among your clients about your payment terms. Make these as clear as possible from the beginning.
These terms should also be accessible at any time. Sending clients a copy of the agreement can make this obligation easier to handle.
Your payment terms should outline late payment fees, due dates, and the consequences of defaulting. This will eliminate misunderstandings and increase the likelihood you receive payments on time. Having clear payment terms will also aid with business relationship management.
The easier it is for clients to pay, the fewer problems you'll encounter. Offer flexible payment options, such as using multiple different payment methods for a single monthly bill.
You shouldn't provide too much leeway. Some B2B lenders make the mistake of letting borrowers postpone payments at will.
Simple strategies can go a long way. For instance, you might have to send an email reminder to a client about debt repayment. You could include links to your accepted payment processors in the email.
Having empathy toward your clients is always recommended. It's important to remind them that you're willing to hear them out.
This also conveys that you understand their situation. Although missed payments can be frustrating, don't lash out at clients. This could cause them to default on their loan and refuse to pay the money back.
From here, you'll have to accept your losses or take legal action. It's worth being flexible in certain scenarios. For example, a natural disaster might have disrupted a company's production.
Allowing them to make payments at a later date could ease their financial burden. This will give you a better reputation and ensure you develop long-term client relationships. If your company is notorious for heavy-handed debt collection, it could be difficult to find borrowers.
Your debt collection strategies should help you properly archive your payment information. You can use this data in the future to handle disputes.
For instance, a client might contact you and be dissatisfied with their current balance. They might mistakenly claim that their balance should be lower than it is due to their past payments. You can reference your payment records to gain insight into the truth.
It's best to keep your data backed up in separate locations. You should store payment records on a separate physical hard drive and a cloud server. This ensures you'll always have access to this information when you need it.
Keeping your debt collection data in a single location will make the process much more efficient. Higher efficiency often equates to better performance. You can use a specialized platform or manually centralize your collection data.
Working with a professional is also an available option, as they have resources you can leverage. The less time debt collection takes, the easier it will be to manage.
Your collections process should emphasize the accounts that need attention the most. Don't make the mistake of sending out universal messages to all your clients.
This could irritate those who don't have issues meeting your repayment requirements. Some companies use artificial intelligence (AI) and machine learning (ML) to organize clients based on their repayment status.
Your process should include different levels of escalation. Ideally, your clients will pay on time with no questions asked.
If they don't, you'll need to be a bit more vigilant in your debt collection efforts. You can respond to missed payments with formal letters assessing the situation. You should outline the potential consequences of future missed payments.
If your clients still don't pay, you might need help from a third party. Carefully design a process that maximizes your debt repayment without being too aggressive. This can substantially minimize the difficulties you encounter.
Working with an expert provides access to valuable knowledge and powerful tools. These can dictate whether your debt collection process meets your goals.
Find someone with a strong industry reputation. They should proudly showcase their past clients and emphasize their success rate.
You should also ask about their compensation policy. Some firms charge upfront fees, while others work on a contingency basis. Those with contingency-based policies take their compensation out of the debt they recover for your business.
Prioritize hiring a firm with solid customer support. It can be difficult or impossible to overcome issues on your own. If they aren't easy to get in touch with, look elsewhere for better options.
Although it might seem complicated at first, commercial debt collection doesn't have to be difficult. With the right strategy in place, you'll get the money you're owed and keep your operations running smoothly.
The team at American Financial Management uses our Attorney Intervention Collection Program to collect debt on your behalf. We strive to provide results as quickly as possible and exceed your expectations. Book a consultation today to learn more about how we can help.
