This is the third part in a 5 part blog post series about dealing with late or non-paying customers.
Still having trouble collecting a payment? It’s probably time to hire a professional collection agency. But, before you do, be sure to confer with your financial adviser or accountant, and contact the Better Business Bureau to be sure there are no complaints against the one you select.
Remember, a collection agency will be representing your business, and unprofessional tactics can impact your reputation. You can also get yourself into legal hot water by making threats, using harassing or abusive language, making collection calls at odd hours or too often, or by making false statements about what will happen if the debtor doesn’t pay.
It also makes sense to familiarize yourself with the Federal Trade Commission’s “Fair Debt Collection Practices Act.”
If a collection agency doesn’t work:
Have your attorney send a formal letter stating that if you’re not paid in full within a certain time frame, you’ll be forced to take the client to small claims court or arbitration. The normal claim limit here is between $2,000 and $7,500, depending on the state in which you do business. If you threaten legal action, the client will usually pay up. But if he or she doesn’t, you may have to follow through with your threat. Before you do, consider the amount you’re owed, how much time it will require to get it, and whether you want to work with this client in the future.
If a client owes significantly more than the small claims process allows, you may want to sue in a formal state trial court. Debt collection cases are usually simple because few actually make it to trial. Most defendants either settle beforehand or fail to show up in court, in which case you receive a default judgment.
For more information: Fair Debt Collection Practices Act
- Read Late or Non-Paying Customers Part 1 of this series to learn about dealing with late or non-paying customers.
- Read Late or Non-Paying Customers Part 2 of this series to learn about modifying payment terms.
- Read Late or Non-Paying Customers Part 4 of this series to learn about covering cash shortages.
- Read Late or Non-Paying Customers Part 5 of this series to learn about firing a client.