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Legal Tips for Small Business Debt Collection

posted Sep 9, 2014, 7:07 AM by Lane Siekman

Debt collection can be a major source of frustration for small business owners. These tips are designed to help you understand your options and make the right decisions for your business. If you need assistance collecting a debt, contact your Attorney.

  1. It all starts with good accounting practices. Accurate and detailed records will help you quickly identify and deal with delinquent accounts. Your customers and clients should know exactly where their account stands. Provide itemized invoices that include a specific due date for payment.  If an account is delinquent, include the total amount owed, the number of days past due, the original due date and any late fees or interest owed. 
  2. Do not ignore a past due account. Don’t wait to take action on a debt. You should not let a past due client or customer accrue more debt or continue to receive services. The longer a debt remains unpaid the less likely you are to collect. 
  3. Know the rules for debt collection. The Fair Debt Collection Practices Act (FDCPA) regulates collection agents, law firms and other third party debt collectors. Original creditors are generally regulated by state law, which may vary greatly. Some states, like California, have laws that are similar to the federal regulations. Violating state or federal regulations could result in legal action. Make sure you are compliant with state law in regard to charging interest or late fees on past due accounts. 
  4. Be professional and courteous in your collection efforts. It is illegal to threaten, harass or intimidate customers who are unable to make payment. Never threaten an action you are not willing or legally allowed to make. Keep in mind, a customer who is behind now may make good on their obligation and become a valuable customer. 
  5. Consider accepting an installment plan. Some customers simply do not have the funds to make a one-time payment. Try working with the customer to determine what they can afford or if installment payments are feasible. Be sure to document any agreement you make in writing and have the customer sign a copy to acknowledge they intend to make payments. Your Attorney can help review your agreement prior to signing.
  6. Take legal action in small claims court. If your initial collection efforts fail you may have no choice but to take legal action against a debtor. Small claims court generally offers a streamlined process for collecting debts under a certain amount. 
  7. Talk to your Attorney. If the amount owed exceeds the maximum allowed in small claims court you may need to consider other legal options. Your attorney can explain the laws where you do business and help you decide on the best course of action.