“My Customers Don’t Pay!”
What can a business owner do to recover debt fast?
What is the first thing that you want to have as a startup? We guess most of you answered clients. But that’s not exactly what you should be working to get. In fact, startups don’t need clients, they need paying clients.
It is easy to get caught up in the swirl of credit sales just to ensure that you sign contracts with new clients and get the business going. However, if you are like most entrepreneurs, you soon find yourself with a lot of work and no liquid cash.
Credit sales are great if you know how to make clients pay on time. Debt recovery is not scary and you don’t need an external contractor (that will cost you even more money and time) to get your customers and clients to pay.
What to do instead?
The first thing you should do is contact your business lawyer. She will outline the process for you and offer a solution tailored to your situation. It will be fast and painless.
However, many startups decide to try managing debt recovery without their lawyer and that’s fine up to a certain point.
If you have exhausted all goodwill tools for debt recovery and need to take legal action, we strongly recommend you to meet and discuss this with your lawyer. If we go to court, we wouldn’t do it without a trusted business lawyer. Be sure that the debtor will have theirs with them.
So, what should a business owner try to recover debt fast before going to court?
1. Have clear payment terms signed by clients and customers
Payment terms should be part of your contracts. Make sure clients read and agree with them (by ticking a box or signing papers). This is your base for any claims that might be filed on a later stage.
2. Send reminders
Email, sms or snail mail….The medium really doesn’t matter. People often don’t pay their debts because they simply forget about them. Make sure you send 2-3 reminders a few days before payment deadlines approach.
3. Give incentive for payment
Research has shown that discounts as small as 3% have increased on time payments for retailers. When you send reminders to your clients, offer them a small discount or a coupon code to use with further purchases if they pay before the deadline.
If they haven’t paid on time.
4. Call the debtor
Give a short call to let them know that they still have outstanding debt and show understanding of their financial situation. Make sure to record the calls so that any payment promises made go to your archives. If they don’t pick up or are uncooperative, try to…
5. Send an email
We would advise you to send 2 emails – one directly after the first call and one in a week’s time. The first one should outline the agreement or identify that they couldn’t be reached. The second one should let them know that if they do not complete payment, legal action might be taken.
6. Send an official letter
Let them know that they have an outstanding debt with an official snail mail letter. Keep a copy for your records as well. This letter should state the debt, the terms that they have agreed to and also show that you are open for discussion and rethinking the terms in case there are unforeseen circumstances. Debtors are much more likely to communicate if they know your intentions are collaborative.
7. Send a letter of demand
A letter of demand is an official document that precedes a claim. It doesn’t have legal power but is often enough to make a debtor nervous enough to pay if they were just not intending to pay on time. The letter of demand outlines the initial payment terms and other specifics of the debt. You can find a free sample here.
By following these simple steps you would have done everything a creditor can to avoid going to court and making the financial matter a legal one. If none of these work you and your lawyer might decide to pursue the debt in court.
Never do that alone. Even if you know the whole legal procedure of debt recovery by heart, you are not a lawyer.
Good luck and remember – it is your money, don’t let it go just because you are a small business owner.
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