Essential Steps to Take When Collecting a Debt Owed


As a business, you need to receive payment for all goods and services you provide. Your customers know this, but sometimes they fail to pay you on time. Trying to collect a debt owed to you can be frustrating and sometimes distressing. Your business relies on your ability to handle your accounts receivable.

Slow-paying and non-paying customers are still customers, however. In order to maintain good relations, knowing the essential steps to take when collecting a debt is key. By taking the correct actions, you better your chances of receiving payment and maintaining a solid reputation as a business with which customers enjoy doing business. 

Start at the Beginning

Picture of two business people shaking handsThe first essential step to collecting a debt owed is completed before you’re owed the debt. It starts with a solid accounts receivable plan. Determine what type of invoicing program you will use and become well trained to use it. The program should enable you to keep an accurate record of your sales as well as ensure you can see when payments are due.

Equally imperative is having a clear payment policy that outlines your customers’ duties and the actions you will take if they do not meet their obligations on time. This should be presented to the customer when you commence doing business. Make sure your customers understand and agree to any penalties or actions you will take if they are delinquent. These actions can include turning the customer over to a debt collector or reporting the debt to credit bureaus, something that can appear on their future credit report.

Customer-Friendly Invoices

Your invoicing program needs to serve both you and your customers. When invoices are overly complicated or fail to state payment due dates and terms clearly, customers can misunderstand what’s required. Failure to itemize billable items also creates delays while the customer tries to understand exactly why the funds are owed. Unclear invoices may also lead to your customer disputing the debt.

Relatedly, send your invoices out promptly. This includes both your initial invoice as well as all subsequent invoices. Send statements out regularly, and consider sending either letters or emails as reminders for upcoming payments. These statements and reminders serve double-duty as both requests for payment and documentation you will need in the event of delinquent or non-payment. 

Pick Up the Phone

After establishing you’re receiving inadequate or no response to your statements and reminders, it’s time to pick up the phone. Do this sooner rather than later. Although it varies by state, how long a debt can be collected does become a factor. Additionally, accounts that are allowed to become significantly past due have a much lower remittance rate than those that are handled more proactively. 

Picture of business person at a desk on the phone

When calling your customer, it’s wise to plan what you will say. Writing up a script helps to keep you on-task and calm, regardless of how your customer responds. Speak in a friendly but firm and professional tone. Remind your customer of their responsibility to pay and attempt to determine what’s causing the delay.

There are times when a problem is understandable. Perhaps a bill was not delivered or was misplaced. Your customer’s accounts payable department may have inaccurately added the invoice into the system. These types of mistakes are not uncommon and can often be handled easily, especially if you remain pleasant in your conversation. 

You do need to be prepared for other excuses and reasons. Unfortunately, you also need to be ready for your customer to become defensive or even hostile in response to your request for payment. You must not engage or escalate if this happens. If the customer becomes verbally abusive, suggest that the matter should be handled at a future time and excuse yourself from the conversation. There’s little that will be gained when someone is irate, and you run the risk of making the situation worse. You don’t want your customer digging in their heels and deciding not to pay because they feel you’ve offended or insulted them.

Consider Compassion and Cooperation

Ups and downs in business can lead to delayed payments from your customers. These customers may have every intention of paying, but they may be unable to afford to pay at this time. If you’ve talked with your customer and determined this is the case, it may be time to use a little compassion.

Are you able to accept payments instead of the lump sum of the invoice? Establishing a payment plan like one involving monthly payments allows your customer to keep their dignity while extending the time allowed to pay the invoice. Payment plans allow you to have money coming into your business, helping keep you financially solvent. 

If it’s clear your customer doesn’t have funds and is unlikely to have them, you might consider discounting the amount owed and collecting one lump sum. This feels unpalatable, and it can hurt. It hurts much less than failing to collect any payment on the invoice, though. Offering a discount can also allow you to help your customer settle the invoice in a way that allows you to collect more than if you were to escalate it further. Either way, you receive money from a customer who might not otherwise pay. 

Document Everything

As you move through the steps of collecting a debt, there is one overarching step that must be followed. Be sure to document everything. Keep copies of the invoices and reminder letters you send. Keep track of all emails, making sure to capture communication from both sides. 

picture of filesWhen you have a phone conversation, document the date and time of the call. Verify with whom you’re speaking and record that as well. Keep notes on the conversation. Afterward, it’s also wise to send a letter or email that outlines the conversation and any agreements reached. Outline the next action you will take to collect the debt if necessary. Be meticulous in your documentation. Documentation is imperative if you find the need to escalate your response to receive payment. 

Utilize a Collection Agency

A collection agency is sometimes the best solution for your late or non-paying accounts. Collection agencies know debt collection laws and the tactics to encourage payment. While you are well-suited for running your business, a collection agency’s business is collections. They focus on collecting debts for you so you can focus on running your business. A collection agency can handle your customers and explain the situation to them as well as how to pay off a debt in collections. 

Some collection agencies, like Alexander, Miller & Associates, don’t charge any fees upfront. They receive a percentage of the amount paid, and they only receive payment when the invoice is paid. This highly incentivizes them to work for you. The collectors at Alexander, Miller & Associates are well-trained and adept at recognizing and handling excuses for delinquent payments. Their experience and skill at debt collection practices assist them in getting you a satisfactory result on those frustrating invoices, all while managing your customers with tact and respect designed to help maintain your reputation and relationship with them.

Pay Attention and Get Paid

Although trying to collect on overdue payments can feel uncomfortable, your business depends on your ability to handle this type of problem. By paying attention and staying on top of your invoices from the outset, you’re in a better place to find yourself paid promptly. A streamlined invoicing and collection plan can make the difference between funds being lost to accounts receivable and your business growing and expanding. Use these steps to step away from time and money lost to unpaid debts, and step into a healthy financial future for your business.