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Debt collection methods and techniques

Gino Lisondra
03 November 2017 7 minute readShare
debt coins debt collection methods and techniques

Promptly, professionally, and decisively commencing and completing a debt collection process is a must for every business manager/owner who aspires to keep their business organisation healthy and successful. 

Customer debt and debt collection are realities for every modern business—regardless of size or nature. As a business owner/manager, preparing for debt collection issues and effectively responding to delinquent customer-debtors is a must to ensure continued business growth and success.

Besides observing the debt collection guidelines promulgated by the Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investments Commission (ASIC), consider the following steps, in order, in promptly attending to customer debt and effectively commencing—and completing—the debt collection process:

  • Friendly payment reminder
  • Overdue payment reminder
  • Final notice
  • Direct contact
  • Formal letter of demand

Friendly payment reminder

When payment is overdue, communicate with your customer via phone, email, or even the traditional mail with a courtesy reminder. There might be several reasons why the customer has not promptly attended to his debt repayment responsibilities—he or she might have forgotten the due date, paid or posted the amount into the wrong bank or the wrong payment channel, or some other minor issues. Your reminder might just be what your customer needs to pay off his or her debt.

To facilitate the convenience and speed of your customer doing so, include in your courtesy reminder your complete bank details and contact information.

Overdue payment reminder

If the debt still remains unsettled and your customer has already missed the agreed upon due date and there is still no communication from him or her, then make a call or send another email. Remind them of the money they owed and request for them to repay it as soon as they can.

Final notice

Call or email your customer again when they still have not paid in accordance with agreed upon terms of payment, and when they have already missed the extended payment dates. Your call or email should contain information on their outstanding debt and your request for payment.

Direct contact

When you customer still hasn’t responded and his or her debt remains unsettled, you may now consider seeing your customer—or contacting them via phone, if all the previous contacts you have made were via email—and asking them to fulfill their debt repayment obligations.

Doing this can sometimes help create a good understanding between you and your customer, which might prove beneficial for their future debt repayment obligations.

Formal letter of demand

When you have exhausted all possible means to contact your customer and remind them to settle their debt but still there is no positive result, you may now consider sending a formal letter of demand. Remember that doing this should be considered your last resort, as it may lead to damaging your relationship with your customer.

How do you prepare for a speedy debt collection process that is also convenient for both you and your customer? Consider the following:

  • Ensure terms of trade are clear, and all specifics are agreed upon
  • Be prepared for any kind of excuses
  • Maintain control but be flexible
  • Employ professional debt collection representatives
  • Seek legal advice and issue a complaint, if absolutely necessary

Ensure terms of trade are clear, and all specifics are agreed upon

Prepare not only during the business transaction but way before it actually happens. Adequate preparation is necessary for all effective and successful endeavours, and debt collection isn’t exempt from this premise. To adequately prepare, make sure all outstanding items are covered before you commence debt collection.

Make sure that your terms of trade are clear, and that they are signed and agreed upon before commencing your business transaction with your customer. Your terms of trade are clear when they outline and contain the specifics on the responsibilities and expectations of all parties involved. The terms of trade should provide you with a written agreement in the conduct of business between or among all parties involved.

When you have a clear and specific written agreement, you are ensured of an enforceable contract, should you need to collect debt repayment in the future. The contract, with its proper terms and conditions agreed upon by all parties involved, will be to your assistance should you need to follow up on your customer on their debt obligations or when you issue a formal complaint against said debtor in the courts.

Once you have the terms of trade in an enforceable contract, you focus on the following things during the business transaction itself: your customer’s cash flow and their other outstanding payment concerns to other businesses or financial institutions. Upon initiating the business transaction, you need to pay close attention and do the necessary action(s) to the following in order to promptly and effectively attend to any cash flow issues your customer might have:

  • Records and accounts receivables—keep copies of all these and consult with your customer when unclear on certain specifics
  • Gather all facts and keep them in your client facts reservoir
  • Maintain regular communication with your customer
  • Keep records of your communications—chats, emails, SMS, and any other conversations and discussions
  • Set clear expectations and agree to clarify them when customer has inquiries or complaints—do all these promptly and courteously

Be prepared for any kind of excuses

Never underestimate the power of your confidence. You’ll see that when you’re confident, you commence and complete debt recovery fast and successfully. Confidence also establishes your control in any given situation—even when your customer presents to you excuses why they are unable to fulfill their debt repayment obligations. Some of the most common excuses include:

  • Customer’s company is filing for bankruptcy
  • The cheque is already in the mail
  • Customer’s system is down
  • Customer is also waiting for payments from their own clients
  • Customer says they have no copy of the invoice, have misplaced it, or have lost it

When these excuses are thrown at you, make sure you are prepared to respond professionally but still decisively.

Ask for the trustee’s name whenever presented with the bankruptcy excuse. For the “cheque-is-in-the-mail” excuse, respond by requesting for the transaction details—receipt number, post date, bank/financial institution information, etc.

When your customer says their system is down, always respond with alternative methods for them to make the payment while reminding them of the terms and conditions stipulated in your contract. The same goes for when your customer says they’re also still waiting for payments from their own clients: again, remind them that they have agreed to the terms and conditions of the contract they have signed and that it is their obligation to commence debt repayment to your business organisation.

With the invoice excuse, respond by sending and resending a copy of the invoice as soon as you can. Confirm that they have received it, and document their confirmation of receipt of said invoice copy.

Maintain control but be flexible

Clear and concise records of the actions you took and the events that have been taking place leading to your filing a legal complaint, and even down to the legal ruling, are of utmost importance. Thus, it is absolutely necessary that you have kept all records and information on all the communication you have had with your customer and the specific course of action(s) you took in commencing the debt collection process.

This is because when you must, you will be presenting all these once you finally decide to take legal action and file a formal complaint against your customer to the courts.

Employ professional debt collection representatives

Before you finally decide on lodging a formal complaint to the courts, however, consider employing the services of professional debt collectors, if you haven’t yet.

You may—and it is actually advisable—to engage the services of a professional debt collection firm especially when you’re the type of business owner/manager who takes the softer approach and tends to empathise with and favour your debtor. You can also tap professional debt collectors when you feel it is stressful for you to perform the debt collection yourself.

Seek legal advice and issue a complaint if absolutely necessary

Finally, if you’ve done everything and exhausted all possible options to collect an outstanding debt but you're still in vain, it is now time—and just the right thing to do, reallyto seek legal advice and issue a formal complaint against your delinquent customer-debtor to the proper courts.

Engage the services of a trusted lawyer with proven expertise on the subject matter. He or she will help you through the entire process; your lawyer will explain to you the unfamiliar legal terms and jargons you may encounter, as well as the implications of your course of action.

Usually, the standard process with your lawyer till your filing of the formal complaint against your customer is as follows:

  • Engaging the legal services of your lawyer and receiving from him or her sound legal advice
  • Formally issuing the complaint
  • Servicing the complaint
  • Judgment or payments of the debt

Note that generally, after six months, your chance to recover outstanding debt significantly decreases, so make sure to act appropriately, promptly, and decisively in the entire debt collection process.

Besides promptly and appropriately commencing the debt collection process, you may also look into reducing the recurrence of customer bad debt, even before debt collection issues arise.

Consider the following:

  • Performing a thorough background check before offering credit
  • Setting appropriate customer credit limits
  • Releasing goods only when payment has been cleared
  • Sending invoices as soon as job sees completion
  • Stating very clearly all payment options on invoices and contracts to facilitate convenience for your customer’s payment
  • Keeping constant communication with your customers
  • Offering a small discount for early payments

Thoroughly understanding where you stand, what you can do, and how to exercise your rights and power as debtee will no doubt help you successfully commence and complete the debt collection process. Also, remember that you needn’t do this alone, you may engage the services of professional debt collection representatives or seek legal advice and assistance from your trusted lawyer.

Debt collection can sometimes prove to be a stressful and all-too-demanding process. That is why adequate preparation and sufficient knowledge are necessary to ensure your success in this endeavour.

Debt collection methods and techniques
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Gino Lisondra

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