Your company has the right to collect payments from your borrowers or customers. Here are a few tips on how to strengthen your approach for the recovery of debt.
With consumer protection programs and the statute of limitations for consumer debt collection in Ontario, recovery of debts can be a challenge for many businesses. In fact, in the 2017 Global Business Monitor Report, 48% of Canadian SMEs have problems collecting payments from customers. Despite the collection efforts of their in-house debt collectors and despite knowing the fact that default accounts may cause a negative impact on their credit scores, many consumers with delinquent accounts may still have managed to dodge their loans, making them safe from any legal actions that their creditors may take. In 2013 and 2014, the Canada Revenue Agency (CRA) has written off a total of $4 billion which includes debts that are more than $10 million.
Unfortunately, for small to medium enterprises with limited working capital margin, these delinquent accounts can pull their business down. Never let this happen to your business. Minimize writing off bad debts. Write off debts only when there’s no prospect of collection such as when the consumer has gone bankrupt. Your company has a number of ways to collect money that is owed to you.
Strengthening your debt collection process is one way to keep your business running. Here are a few tips that would help you improve the recovery process of the overdue amount owed from you. These tips would eventually help you reduce losses in your business.
Start Your Consumer Credit Collection Process As Early As Possible
For most start-up businesses who are still building up their customers list, their greatest fear is losing a client or ruining their customer relationships when they demand payments. This is of the reasons why consumer credit collection is difficult for them. Therefore, it is important to set the customer’s expectations up front. At the onset of the business relationship with your customer, discuss with them clearly the terms and conditions as well as the consequences when the debtor missed a payment. These consequences may include deferral of credit terms or goods, third-party collection agency referral, collection of late payment penalties, and taking the case to court. When customers are fully aware of these possible actions beforehand, they would be discouraged from missing out on a payment. Moreover, it is beneficial for both parties if a contract is signed by you, as the creditor, and the debtor.
Send Payment Reminders In Advance
Some debtors miss making their payments not because they couldn’t afford them but because it may have slipped their minds. Hence, it is recommended to send an email or a text message on their phone number reminding them of their dues. This pro-active gesture wouldn’t only help you collect payments on time but also provides an opportunity to resolve any possible customer concerns or invoice inquiries.
Furthermore, a solid sales process helps in having a strong debt collection process. Acquiring a purchase order and timely issuance of sales invoices that show the payment due date of each transaction would be a good initial payment reminder as well.
Document Any Contacts Made With The Debtor
Most companies would have a record of communication with their customers. However, most of the time, they fail to document unsuccessful contact attempts. Having documentation of both successful and unsuccessful attempts would be beneficial for your company whenever there is a need for you to take the issue further.
Get Collection Services From A Respectable Third Party Collection Agency
Tracking unpaid accounts before they become delinquent and making insistent demands for payments are tasks that require a lot of effort and commitment. Therefore, if your business has the luxury of having a department that’s responsible for collecting debts, the more effective and efficient your debt collection process can be. Otherwise, getting professional services from a third party company specializing in debt recovery would be a wise decision.
In your attempt for recovering overdue debts, time can be limited. The statute of limitations in Ontario has set that businesses or collection agencies can only collect payments from debtors up to 2 years from their last payment. Beyond this period, you can no longer pursue them. Therefore, it is best to collect the amount owed at the soonest possible time. Credit collection companies are experts in persuading consumers to pay their outstanding debts and they can do this quicker than when you do it on your own. Furthermore, when in cases where a borrower avoids paying for his debts, collection companies are persistent in demanding payments. Their debt collection specialists are well-trained and equipped for the task. As they are also paid based on the collected amount, rest assured that they put forth more collection efforts. Hence, they will be able to collect more debt payments, bringing in the money back to your business.
Moreover, if a debtor is unable to be found and his friends, families, or co-workers refuse to provide his whereabouts and contact information, debt collection agencies have a skip tracing tool which enables them to locate debtors who have changed addresses and phone number. They are also able to obtain your debtor’s up-to-date contact details.
Aside from helping you in preparing and sending final demand letters to delinquent borrowers, third party collection agencies also offer pre-collection services for accounts that aren’t referred to collection agencies yet. Furthermore, these collection companies offer Judgment recovery services.
In a number of cases, an overdue account becomes delinquent because businesses don’t have the capability of monitoring them and following up on payments. This problem can be resolved with the help of a debt collection agency since they have strategies for monitoring your accounts. In addition, they have a comprehensive system that may include workflows that allow them to work efficiently, reducing costs and increasing the probability of the recovery of debts.