Every year, small businesses write off thousands of dollars in unpaid debts. Why? One reason is they don't know how to legally collect unpaid debts. Yet, knowing the right ways to get back what's rightfully yours is essential for every small business owner.
Give them a Break!
Before rushing into court, it may prove more cost effective to simply settle with a debtor before taking further action. Use the opportunity to write a collection letter to your debtor. Make sure the letter includes what the debt was for, the amount, what methods of payment you accept, and where they can send payment.
You may also want to consider whether you would be willing to accept an amount lower than the original debt. If so, explain what amount you are willing to accept as "full and final settlement." It's smart to set a time limit to your settlement offer.
Also, be sure to include in the letter whether you are willing to accept installment payments and how often they need to be paid. Offering payment options gives the debtor an easier way to pay back the debt and makes it more likely you'll collect.
Delegate the Hard Work
What if your collection letter goes unanswered and attempts to work with your debtor are unsuccessful? Your next step is to contact a professional collection agency, which can greatly improve your chances of collecting debt. No one wants a bad mark on their credit report. Communication from a professional agency also appears much more formal than your own collection letter and will show the debtor that you are serious about collecting the debt.
The best part is the collection agency handles the entire collection process for you. Typically, they start by notifying the debtor they have been hired to collect the debt. A collection agency will also set out payment options in accordance with terms you have approved and agreed to. After the notices are mailed, a collection agency will follow up with phone calls if necessary to arrange for payment of the debt, discuss payment options, and notify the debtor of possible future collection activity and consequences if the payment goes ignored or unpaid.
The collection agency will keep you updated during the entire process and advise you of all ongoing activity with the debtor. Keep in mind that even though you have obtained a third party to assist in the collection efforts, you still maintain control over the settlement amount offered to the debtor, the choice of whether to accept a payment arrangement and all other important aspects of the collection. Delegation does not mean you lose control over the collection of your money.
I'll See You in Court
If the collection agency's efforts fail, you may want to look into filing a small claims complaint against your debtor. Filing a small claims complaint is generally inexpensive, but be sure to check with your state's laws regarding the maximum amount allowed for your claim. Anything over that amount is not allowed in small claims court, and must be filed as a suit in civil court. If the amount of your claim is under the maximum amount allowed in small claims court, you can normally find a small claims complaint form online for your state, or visit the court clerk's office to obtain a complaint form to fill out and file.
If you don't want to struggle with court forms or time-consuming filing procedures, LegalZoom can help. Simply answer a few questions online, and LegalZoom will create the necessary forms for you, and in some states, even file them with the proper court.
There are many options available to collect money from an unwilling customer or client. Don't be so quick to simple write off a debt. As, your persistence may prove to pay off. Literally.