If you own a business, chances are you've had to deal with at least one client who's been delinquent in paying their bill. In most cases a gentle reminder such as an email or quick phone call does the trick, but what happens when another month rolls by and you still haven't received payment? Here are five effective ways to collect outstanding debt.
1. Send a second invoice
If 30 days go by and you still haven't been paid, send a second invoice. Make sure it's clearly marked as a second notice, preferably in big, bold, red, letters. You can send a second invoice by regular mail, email, or both.
One common mistake many freelancers make with the second invoice is not including a late fee or long payment terms. If you don't have one in your invoice, your clients may have little incentive to pay on time and eventually may even forget about it.
2. Call the customer
If you've sent a second invoice and haven't received payment, it may be time for a phone call. Be polite, but firm. Give the client the benefit of the doubt. Perhaps your invoice was overlooked?
If so, then make it clear that you expect payment by a specified date. Unfortunately though, when it comes to collecting money from someone who doesn't want to pay, being Mr. or Ms. Nice will get you nowhere. If the customer is resistant or non-responsive, consider the next step: a demand letter.
3. Generate a demand letter
When you've exhausted less formal requests, a demand letter is usually the most effective way to get results.
A demand letter is the first step in the legal process of collecting money owed to you.
Written by an attorney, this legal document can prove effective, especially if you think you may need to take the client to small claims court.
The demand letter should be concise and to the point, clearly stating the issue, your attempts to resolve it, the amount due, and the date payment was due. Avoid threats or personal attacks. Make several copies for your records and send the demand letter to both yourself and the client via certified mail, return receipt requested.
4. Take it to small claims court
As a follow-up to your demand letter, you can decide to take the client to small claims court. Be aware however, that even if you win your case, it doesn't guarantee you will ever see your money.
5. Call a collection agency
Alternatively, if you decide to forgo small claims court, but still want a shot at getting your money, then hire a collection agency to handle it.
Only you can decide whether the money you're trying to collect is worth the cost of chasing it down. But as any entrepreneur will tell you, you can't make money if you don't collect it.