Methods and techniques for debt collection

Every modern business must deal with customer debt and collection. To ensure your business’s continued growth and success, you must prepare for and respond to customer debtors.

It would help to observe the debt collection guidelines issued by the Australian Competition and Consumer Commission and the Australian Securities and Investments Commission. The following steps will help you promptly attend to customer debt and successfully begin–and complete–the collection process.

• Reminder to pay promptly
• Overdue payment reminder
• Last notice
• Contact direct
• Demand letter in writing

Reminder to pay promptly

You can communicate with your customer by phone, email, traditional mail, or email if payment is late. There could be many reasons the customer hasn’t paid his debt repayment on time. They may have missed the due date, not paid the amount in the right bank or payment channel, or had other minor problems. Perhaps your reminder is all the customer needs to repay their debt.

Your customer will be able to complete the transaction quickly and easily if you include their bank details in your courtesy reminder.

Overdue payment reminder

If your customer is not responding to you or if the debt remains unresolved, or if the due date has passed and they have not communicated with you, call them or send an email. You should remind them about the amount owed and ask them to repay it soon.

Last notice

If they are still not paying according to the agreed terms of payment or if they have missed extended payment dates, call or email them again. You should include information about the outstanding debt and your request for payment in your call or email.

Contact direct

If your customer has not responded to you and you are still unsure about their debt status, you might consider visiting them or calling them by phone if you have had previous contact via email and asking them to repay their debts.

This can help you and your customer better understand, which could be beneficial when they need to repay their debts.

Demand letter in writing

Suppose you have tried all avenues to reach your customer to remind them to settle their outstanding debt, but no positive results persist. In that case, you might consider writing a formal letter demanding payment. This should not be your last resort as it could damage your relationship with your customer.

How can you ensure a fast and efficient debt collection process convenient for you and your customer? Here are some ideas:

• Make sure that the terms of trade are clear and that all details are agreed upon
• You can make excuses for anything.
• Be flexible, but keep your control.
• Employ professional debt collection representatives
• If necessary, seek legal advice and file a complaint.

Make sure that the terms of trade are clear and all details are agreed upon

Preparation is not just for the actual business transaction but also before it happens. Effective and successful endeavours require adequate preparation. This is true even for debt collection. Before you begin debt collection, ensure that all outstanding items have been paid.

Before you begin any business transaction with your customer, ensure that your terms and conditions of trade are clear and signed. When they detail and include the expectations and responsibilities of each party, your terms of trade will be clear. You should have a written agreement regarding business conduct between all parties.

If you need to collect your debt repayments in the future, you can be sure of an enforceable agreement if you have a written agreement. If you have to follow up with your customer about their debt obligations, or if you file a formal complaint against them in the courts, you can refer to the contract.

After you have agreed on the terms of trade, focus your attention on the following aspects during the business transaction: Your customer’s cash flow and any outstanding payments to other financial institutions or businesses. You must pay attention to what your customer is saying and take the appropriate action to address any cash flow concerns.

• Keep records and accounts receivables. If you are unsure, consult your customer.
• All facts should be gathered and kept in the client facts repository.
• Keep in touch with your customer regularly.
• Keep records of your communications–chats, emails, SMS, and any other conversations and discussions.
• Clear expectations should be established and clarified when customers have questions or complaints. All of this should be done promptly and courteously.

You can make excuses for anything.

Don’t underestimate the power and influence of your confidence. It is easy to get started on debt recovery and finish it quickly and successfully when you are confident. Your confidence allows you to control any situation, even when your customer makes excuses for not being able to pay their debts. The most common excuses are:

• The company of a customer is declaring bankruptcy.
• The cheque has been sent already.
• The customer’s system is down.
• Customers are also still waiting to receive payments from them.
• The customer claims they don’t have a copy of the invoice or misplaced it.

These excuses will be made to you. Be prepared to respond professionally but still decisively.

When you receive a bankruptcy excuse, ask for the trustee’s name. For the “cheque-is-in-the-mail” excuse, respond by requesting the transaction details–receipt number, post date, bank/financial institution information, etc.

Always respond to customers who complain about their payment system being down by offering alternative payment methods. Make sure they are reminded of your contract’s terms and conditions. If your customer claims that their system is down, you should respond with alternative payment methods while reminding them of your contract terms.

Send and resend a copy of your invoice to the excused party as soon as possible. Confirm they received the invoice and provide proof of receipt.

Be flexible, but keep your control.

It is essential to keep clear and concise records detailing the actions taken and events leading to you filing a complaint. You must keep all information and records regarding all communications with customers and the actions taken to collect the debt.

You will need to do this because you must once you decide to file a formal complaint against the customer with the courts.

Employ professional debt collection representatives

If you aren’t sure whether to file a formal complaint with the courts, you might consider hiring professional debt collectors.

It is possible to engage professional debt collection firms, and it is a good idea. This is especially true if you are a business owner or manager who prefers to take a more gentle approach and empathise and favour your debtor. If you find it difficult to collect the debt yourself, you can tap professional debt collectors.

If you need to, seek legal advice and file a complaint.

If you have exhausted all options and tried everything to collect a debt but still are unsuccessful, it is time to seek legal advice.

A trusted lawyer who is experienced in the subject matter should be engaged. Your lawyer will guide you through the process. They can explain the legal terms and jargon that you might encounter and the implications for your actions.

The standard procedure from the time you meet with your lawyer to the moment you file the formal complaint against the customer is usually as follows:

• Engage the services of a lawyer to receive sound legal advice
• The complaint is officially issued
• Service of the complaint
• Judgment and payments of the debt

You will find that your chances of recovering outstanding debt decrease after six months. Therefore, it is important to take prompt, decisive action in all aspects of debt collection.

You should not only start the debt collection process promptly and properly, but you might also consider reducing bad customer debts, even before the collection issue arises.

Take into account the following:

• Before you offer credit, make sure to do a thorough background check
• Set appropriate credit limits for customers
• Only release goods after payment cleared
• Invoices are to be sent as soon as the job is complete
• To make it easy for customers to pay, clearly state all payment options in invoices and contracts
• Maintain constant communication with customers
• Early payments eligible for a discount

Understanding where you stand, what options you have, and how you can exercise your rights as a debtor will help you successfully start and finish the debt collection process. You can also seek the assistance of a professional debt collector or a trusted lawyer to assist you in this process.

Sometimes, debt collection can be stressful and demanding. You need to be prepared and have enough knowledge to succeed in debt collection.