If you own a small business, you may know how difficult debt collection can be. Small business debt collection is often one of the main failing points of many businesses throughout the country. With a little practice and courage, however, you may be able to lessen the amount of late payments that are due to you, and even develop an understanding of when to expect non-payment from a customer. If you can learn effective communication skills, you may find that you can spot problems before they become too big, or even before they happen at all.

Types of Late Paying Customers and Clients

In general, small business debt collection has to do with collecting monies owed from customers and clients who fall into three categories:

• Customers and clients that will go to any length to avoid paying.
• Customers and clients that tend to have many payments due at once and pay them sporadically.
• Customers and clients that normally pay on time, but cannot because of financial trouble.

In general, you will want to ensure that your clients and customers fall into the last two categories. You will be able to manage and work with those that fall into the last two categories because they have a history of making full or partial payments. As a small business owner, however, you need to be able to devise a strategy and method for figuring out which clients and customers fall into the first category. In general, you will want act quickly with regards to the first kind of customer, perhaps by calling a collections agency or considering litigation to collect the debt owed.

There is a general rule that should be applied in all small business debt collection -- act quickly and stay determined. No matter what kind of client or customer you are dealing with, acting quickly will ensure that you maintain your right to the money owed, and staying determined can ensure that you get paid in full. You should send bills and reminders to debt-owing clients and customers on a regular basis. There is no reason to wait until the end of a month to send an invoice or a past-due notice, send them immediately when the invoice comes in or when an amount is past-due.

Collections agencies are regulated through the Fair Debt Collection Practices Act, which prohibits certain actions that may be considered harassment or fraud. What follows are some more helpful hints for small business debt collection:

• Avoid harassing the people that owe you money. This is both a good customer service policy as well as a good legal policy. If your actions can be considered harassing, you may wind up losing a customer as well as facing a legal challenge. If you call your debtors, be sure not to leave more than one message per day, and never threaten or speak ill of a debtor.
• Keep phone calls short. To keep phone calls short, be sure that you are on message, short and formal. Try to be sure that the person on the other end of the line does not take the phone call personally. Do not imply that failing to make a payment is the same as a personal failure. Be sure to stay calm during the conversation, but always be clear that there is a debt that needs to be paid.
• Write letters. The letters that you write to your customers and clients that owe money are called demand letters. You should be sure to send these in addition to making phone calls. Save copies of each letter you send. They may be useful if you have to go to a collections agency.
• Get a collection agency to write demand letters. Collection agencies are professionals when it comes to getting money that is past due. Therefore, it is no wonder that they write great demand letters as well. Many collections agencies offer this letter writing service at a fixed cost. You will normally get a series of letters to mail, each one escalating in intensity.
• Offer to settle for less than is due. If you think that a debtor would be willing to do so, you may want to offer to settle for less than is due to your small business. This is an often used strategy on clients and customers that have no real hope of paying off the debt they owe. This settlement should be made official in a legal document that shows a payment of less than is due that satisfies the entire debt.
• Hire a collection agency. Collection agencies can often be your only hope to collect any money from a debtor. These agencies often charge up to 50 percent of what they collect, but getting some money is often better than getting nothing. You can find out more about collection agencies by visiting the Commercial Collection Agency Association.
• Small claims court. If you do not want to go through a collection agency, you have the option of filing a lawsuit to get the money you're owed. Depending upon your state, you may be able to file a claim in small claims court to recover the money owed to your business. Small claims court is a great arena for small businesses, as these courts are designed to eliminate the high costs of attorneys and other court fees. In fact, small claims courts are such a popular tool for businesses to use to collect debts that, according to at least one source, 60% of all filings in small claims courts are by small businesses.
• File a lawsuit. If small claims court is not an option for you, and the amount of money is too great to hand over 50% of it to a collection agency, you may have to file a lawsuit in order to recover the debt. There are higher costs associated with this method, however, such as fees for attorneys as well as court costs.

Get Legal Help With Your Business Debt Needs

If you're trying to collect from late-paying (or non-paying) customers, it can have a serious impact on your ability to do business, while eating up valuable resources and time. Make sure you're doing it efficiently and in compliance with the law by speaking with an attorney. Don't let unpaid bills sink your business -- talk to a local business attorney today.