There are many instances when customers do not clear their debts on the due date. You may have to work on the assumption
that the client does have a genuine, unavoidable and short-term reason for not clearing the dues. It might be a temporary shortage of cash-flow. There are also some chronic defaulters you may have to deal with.
Debt collection is one of the most awkward and sensitive tasks. It requires a lot of tact, and yet has to produce positive results. You do not wish to lose the customer permanently so it is best to let professionals handle such situations. Here are some useful tips on when and how to hire an effective debt collector:
WHEN TO INVOLVE A DEBT COLLECTOR
Since you wish to maintain a good business relationship with the concerned customer, you will naturally try the regular
method of debt collection, like making phone calls to the debtor. These calls will not a pleasant exercise for either party. For an effective debt collection call, you must:
· Keep all the outstanding invoices before you while making the call
· Read up the case thoroughly, especially any predefined terms and conditions
· Calculate the total amount due
· Choose the right day and time for the call (stick to normal business timings)
· Sound pragmatic and unemotional during the call
· Address the debtor by name in the opening sentence
· Ensure that not even a slight nuance of your voice makes the debtor feel hassled
· Note down important statements of the debtor during the conversation
· Keep the conversation persuasive but not servile (sufficiently emphatic)
· Persuade the debtor to fix an exact date for final clearance of the outstanding invoice.
You must follow up with emails reminding the debtor of the conversation and the verbal commitment to pay off the amount due.
Despite repeated efforts, if the debt remains unpaid for over 3-4 months, it is time to involve a third party debt collection agency.
PROCEDURES TO HIRE AN EFFECTIVE DEBT COLLECITON AGENCY
Debts that have remained outstanding for a long period require professional handling. Also, there may be some customers
who never pay their dues unless they are reminded over and over again. Also, if the amount due is very large then a collection agency’s involvement is advisable.
Since you will be paying fees for debt collection services, it is imperative that you select a debt collector who will be most effective in making the debtor(s) pay up the outstanding amount. Here’s a list of procedures to hiring a debt collector you need to follow so that you get your outstanding funds from customers:
References – Ask your personal lawyers, accountants, auditors, partners and/or other business contacts to verify they follow the relevant statutory rules.
Credentials – Every nation has a regulatory authority that sets out norms of best practices for debt collection professionals. Is the debt collection agency qualified to indulge in debt collection and does it have the requisite licences? If they are licensed, then they will definitely be registered with the regulatory body as credit collection professionals.
Reputation – Make a visit to the agency to assure yourself that they are reputable. Meanwhile, make independent inquiries on the methods used by them for debt collection.
Note: If the agency is insured for professional indemnity, then it is a clear sign that the collection agency means business. Under the provisions of this insurance policy, the collection agency is legally protected against:
· Loss of important documents
· Errors & omissions
· Infringement of intellectual property
· Liability in conduct of business
· Cyber liability,
· Non-disclosure, etc. The
collectors know and understand the prevalent law and have taken preventive
steps against any counter moves by the debtor.
This is a very important procedure while selecting the collection agency. If any adverse legal proceedings against them occur whilst they are acting on your behalf; the situation will automatically have legal implications for your company.
Size – When you visit the professional debt collector, don’t judge their efficiency by the size of the firm if it is a small one. Their average success rate, their reputation for best practices, their legal permissions to act as collectors should be the deciding factors.
Fees – How much does the debt collection agency charge for their services. Are they affordable when compared with the volume of the outstanding funds? The size of the debt versus fee ratio will be the final decision maker in hiring the collection agency.
Some agencies charge a flat fee per invoice irrespective of the amount to be collected. This could be a disadvantage if the
amount is not too large, but a boon if the debt is huge. Some debt collection agencies charge a percentage fee against each invoice for collection of unpaid dues. While fixing a rate with you, their ability as successful negotiators will be evident. If they can negotiate effectively with you, they will also be good at getting your dues against unpaid invoices.
Success rate – What is the agency’s level of success in collection of outstanding funds? Have they managed to collect all the
outstanding funds in each case? Have there been any cases where partial payment was done and the rest had to be written off as bad debts? Have there been cases of failure; when ultimately you had to take recourse to legal action?
Humane debt collection – What do other companies say about their attitudes towards defaulters? Do they browbeat, harass or threaten debtors with physical harm in order get them to clear the unpaid amount? Their negative approach will have an adverse effect on your business reputation. Debtors will feel that you have full knowledge of their methods since you have hired them. This is another important factor that has to be investigated before hiring a debt collection agency.
With the existing advanced technology it is very easy to check online the creditworthiness of an individual or a business concern. Yet, there are many incidents when debts remain unpaid for long periods of time despite many reminders.
If you follow proper procedures to hiring a debt collector; they will follow all the prescribed regulatory norms to get the money owed to you by a debtor. In most cases, your invoices will be paid in a short time, while your business relationship with the defaulter still remain cordial.