As a business owner, you know that cash flow is a major factor that has a direct impact on your success. When your customers – no matter how much you like them – fail to pay the bills for services rendered or products purchases, the cash flow of your company will be negatively impacted. The larger the sum of money you’re owed and the longer you go without receiving those payments, the more damage your business will sustain.
Though creditors do have legal rights and they can take actions in order to collect on those debts, it’s important to note that there are laws that do restrict what it is that you are permitted to do in order to recover the money you’re owed. In other words, if you’re attempting to collect on debts, you need to exercise caution. By planning ahead and making thoughtful, strategic decisions, you can develop effective processes for collecting on past-due bills. With that said, here’s a look at some simple things that you can use to recover a business debt.
The best way to avoid getting into a jam and being owed money by your customers is by making sure that you’re extending credit to consumers who are trustworthy and have a history of repaying their debts. Before extending credit, check the credit score of would-be borrowers and confirm that they have a stable source of income. Individuals who have a high credit score and a reliable source of income are much more likely to repay their debts in a timely manner.
Keep Tabs On What You’re Owed
In order to develop an effective debt recovery strategy, you’re also going to want to make sure that you’re meticulous about keeping track of what you’re owed. Set up a system and whenever you extend credit, make sure that you record all pertinent information, including the amount of credit that you extended, when the payments are due, and of course, the name of the debtor.
Clearly Explain Payment Terms and Conditions
Develop fair terms and conditions related to credit, and make sure that you are upfront with your customers and that you clearly explain those terms and conditions before you extend anyone a line of credit. Often, borrowers fail to pay debts because they weren’t aware of the terms of the agreement for borrowing money. Offer detailed information, in writing, that highlights when you expect to be paid, how much the debtor owes you, your credit terms, and any consequences for late or non-payment.
Consider Providing Incentives for Debtors Who Repay in a Timely Manner
The sooner you receive the money you are owed (without having to make efforts to follow-up with borrowers), the less likely it is that you’ll experience debt recovery issues in the first place. With that said, to encourage your borrowers to make payments in a timely manner, consider offering incentives. For example, you could offer them a discount on a future purchase or a free gift if they make their payments in a timely manner.