When it comes to debt collection procedures, one of the key things to keep in mind is to act quickly. When collecting a debt, it is important to remember to keep things casual, at least in the beginning phase of debt collection process. The key to collecting any debt is to act quickly. Don’t let too much time to pass without notifying your client that credit terms have been breached. Remember that you wish to keep a good business relationship with these individuals as customers, so treat them with respect.

Debt Collection Notice Example

The following is an example of a collection notice that should be sent via email or fax when the debt is approximately 7 days after the end of credit terms.

Dear Accounts Payable,

A friendly reminder that the attached (enclosed) invoice(s) may has (have) been overlooked. We appreciate your early remittance.

Thank you.

Kind regards,

Your name

Title

Name of the business

 

Also, the copy of statement needs to be attached along with the invoice(s).

Debt Collection – When You Should Follow Up with a Phone Call

If you haven’t heard from the recipient of the letter within five business days, a phone call should be made. Speak only to the person responsible for paying the debt. If that person is not available, leave a message with your name, position, name of the business and contact phone number.

Once you contact the person responsible for the debt, remember to keep the tone casual. The initial call should be for the purpose of reminder. Ensure that to take notes throughout the course of the conversation. These notes should include the date of call, who was contacted, and the date payment was promised.

Example of an Initial Debt Collection Phone Call

The following is an example of the initial collection call that should be made:

“Hello, this is Lauren from Allround Supplies Services. I’m calling in regards to your July’s account. We have not yet received your payment. Can you advise me when you may clear the accounts?” Always finish with a question to give them an opportunity to speak. Then, follow with, “Thank you for your time. I look forward to your payment.

As you can see, there was nothing threatening about this phone call. It simply serves as a courtesy, and lets the customer know that the debt has not gone unnoticed.

Unfortunately, not all debtors will pay after this first notice. It is quite possible that you will need to make another phone call and/or correspondence connection. Still, remain cordial. There are many reasons why a debt will remain unpaid. It is imperative that you verify that there is no error on you, or your company’s part. Verify that the debt remains unpaid, speak with the salesman involved in the transaction, and any sub-contractors that may have played a part in the transaction. Verify that all work has been completed and that the service was satisfactory. Once you are certain that there are no loose ends, contact the customer again regarding the debt.

The second collection call should occur five days after the scheduled payment date, as it is common courtesy to extend a five day grace period. After that time, again, contact the person responsible for paying the debt.

Example of a Second Debt Collection Phone Call

The following is an example of the second collection call:

” Hi, This is Lauren from Allrond Supplies Services. I’m calling in regards to your July’s account with the balance of $1,000 that has recently gone past due. When we spoke on August 10, 2014, I was told a payment would be made. Can you confirm if it has been done?”

Let them speak. Then, politely thank them for their assistance. Do not hang up the phone until a new payment date is arranged. If your company accepts credit cards as a form of payment, alert the customer to this fact. Some customers will immediately make partial, of even full payment while they are on the phone. Remember to take notes during this phone conversation, as well.

If the debt still remains unpaid after 4 5 days, place the customer on credit hold if you have not already done so. Then, send a written correspondence alerting them to the fact that their goods on credit privileges have been suspended.

Example of a Credit Hold Correspondence

The following is an example of the credit hold correspondence:

Please be advised that full payment for invoices dated prior to August 2014 still hasn’t been received. Payment is required by the 25th August 2014, or I have no option but to place your account on hold until your account is cleared.

If you have a problem paying this amount, please contact me immediately.

Thank you in advance for your prompt attention.

The tone has shifted slightly. The cordiality is still present, but you’re letting your customer know that you are serious about collecting the debt.

Debt Collection Don’ts

It is very common to become frustrated at this point, but it is extremely important that you follow a strict set of guidelines. The following practices should be avoided when making collection phone call, as they can be interpreted as harassment:

* Do not call at odd hours of the day or night. Calls should not be made before and after business hours.

* Do not make more than one call per week. The only exception to this is if you’re following up on a scheduled payment.

*Do not call a third party, exception to this it to locate the whereabouts of the debtor.

* Do not threaten the debtor in any way.

* Do not allow more than one person to call for collection.

- Do not make false claims that legal action will be taken.

What To Do When the Debt Still Hasn’t Been Paid

If the customer still hasn’t paid its debt after all above resources have been used, there is likely that the customer either is having cash flow problem at the point of time, or the business is in trouble. You may offer the customer with a payment plan that both parties can agree on. Allow the customer to make periodical payment until the debt clears (only deal with customer on cash sales for the time being until full payment is made in near future). To go through the formality, you may send a short note to the customer clearly indicates the amount of the partial payment would have to be made on the specific date and the date the debt should be cleared. Get the customer sign the agreement. Be flexible. It’s always better to get small amount each period than nothing at all.

Some customers may be facing cash flow problem at the point time of debt collection, you may discuss with them in partial payments in an agreed period of time. This method goes well with some businesses.

If you have exhausted all efforts, and still have been unable to collect the debt, send out a final notice. This correspondence should be concise and to the point. There is no need for cordiality at this point.

Example of a Final Notice Correspondence for Collecting Debt

The following in an example of the final notice correspondence for collecting debt:

FINAL NOTICE

Dear Madam/Sir,

We have been trying to contact you in relation to your overdue account but to no avail.

As your account remains outstanding as of today, this letter serves as the final notice of settling the account. If the payment is not received,  or Allrond Supplies Services is not contacted within next 7 days, we intent to commence further debt recovery action by passing the debt to the hands of debt collection agency.

Please note:  you will be also responsible for all the extra costs associated to the process of the debt collection on the top of your account.

If you have any problems of paying this account, or wish to discuss this matter further, please contact me immediately.

At this point of the process, you should have the following supporting documents in that customer’s file: This correspondence should be sent out certified mail with a request for a signature upon delivery. Once the debtor receives the letter, they will be required to sign off that it was received. Then when you receive your copy, place it in the customer’s file. Other items that should be in your customer’s file should include:

- Notes taken during collection calls

- Copies of all correspondence sent to the debtor.

- A copy of the customer’s credit application (with signature)

- Copies of invoices, quotes, proof of delivery (with signature), etc.

- Copy of monthly statement indicates the total amount owing to you.

All of this information will be needed if you decide to take legal action against the debtor.

Taking Legal Action Against the Debtor

Collection Agencies – Most collection agencies won’t charge a fee unless the debt is collected. Different approaches are used by different agencies, but for the most part they are persistent. Some customers have very high success rates with collection agencies, while others do not. It can be difficult to find a reputable collection agency, so be aware that some are not reliable. Get some advice on which collection agency you would like to go to. Apart from engaging a collection agency for you debt, you may have some other options as the final sources of collecting your debt:

Small Claims Court – Small Claims Court is an inexpensive option if the debtor owes you $5,000.00 or less. Here, you represent yourself in front of a judge. Go to your local courthouse and pick up the papers necessary to file. They are very easy to fill out. You’ll pay the court costs, which will most likely be under $ 50.00. The debtor probably won’t show up on the court date, but you will still need to prove that the debt is owed to you, so have copies of all the information you’ve collected.

Attorney – Sometimes, once a debtor sees official paperwork from an attorney, they’ll pay. However, that is not always the case. Attorneys are expensive, the process is long and drawn out, and they will work to try to reach a settlement to avoid court. This usually means you will take a loss, which is why trying to collect the debt yourself is such an appealing option.

The process of collections can become tedious after time; however it is an integral part of any successful business. Remember that consistency is an important part of debt collection. You don’t want your company to be seen as an “easy mark”, or known for its harsh collection methods. Finding a balance between the two, while maintaining good customer relations, will help keep the good customers with you and weed out the bad ones in the process.

Click here for more information on bookkeeping services in Chatswood, St Leonards, Crows Nest and North Sydney.