As the old saying goes, an ounce of prevention is worth a pound of cure... Minimizing bad debt.
Here are a few guidelines and precautions to be observed while recovering a bad debt:
Gather/record all the information you can.
Be prepared for a drawn out struggle and ensure that you have all the history of the debt together. Any mails that refer to business arrangements or finances should be brought out from archives and keep notes on every phone call or email that are made in relation to the debt.
Be professional at all times
The worst way to go about collecting a debt is to start making threats or using aggressive language. In the first couple of contacts, keep the tone friendly - there may have been a misunderstanding or circumstances that have prevented a partner/client who is traditionally a prompt payer from settling the account. To begin with, give them the benefit of the doubt. If, after a few communications, you still have not received payment, remove the friendly tone, but remain professional. Do not ask for payment any more, but demand it. Do not threaten legal action unless you fully intend on carrying it out.
Persistence
If a client says the payment will be made by Wednesday, follow them up on a Wednesday evening. By doing so, it lets them know that you can not be put off easily. This is especially important if the debt is held by an overseas client. If they do not respond to mails, call them. In some instances the annoyance you will cause them will help create an incentive to speed payment.
Personal visits
Some people are quite happy to ignore the sternest of mails, but turn to jelly where there is a threat of a face to face confrontation. Try organizing with the debtor to have your debt collection specialist visit them personally if this is possible. They may suddenly pull out their checkbook without you even needing to step outside your door. If you do decide to send your debt collection specialist, instruct them to go either through an arranged visit or unannounced, and ensure that the specialist remains professional at all times while on the premises. It is a good idea to the debt collection specialist to take someone along as a witness.
Offer alternate terms of payment
If it appears that a client is struggling, but does not want to admit it, try offering terms - but do not make the terms so generous that it will cause you economic difficulty. Also, it is wise to cease further work for this client while the debt is being paid off.
When nothing works.
If you have tried everything and you still have not been able to collect the debt, a call to your lawyer is worthwhile, or to a debt collection agency. Sometimes if a debtor sees that a third party has been brought in, it will cause to them to become more flexible and more willing to settle the account.
About legal action
Many people threaten each other with legal action over a debt. First, your lawyer will need to provide the debtor with a letter of demand formally suggesting the possibility of legal action. If the debt is it still not paid and the matter goes to court, you will need to prove to a court that the debt is authentic. If the claim is proved, you will receive a judgment. After thirty (30) days, and no appeal is filed, then your lawyer can begin to search for and seize the debtor’s assets. As the old saying goes, an ounce of prevention is worth a pound of cure. Take steps to minimize your bad debt by paying attention to your accounts payable and not continuing to work on accounts that are seriously past due..
What is Debt Collection Practices Act (FDCPA)?
The federal Fair Debt Collection Practices Act (FDCPA) sets the national standard for collection agencies. The FDCPA, enforced by the Federal Trade Commission (FTC), prohibits abusive collection tactics by debt collectors and prohibits unfair debt collection practices; such as, lying to, harassing, misleading, and otherwise abusing debtors, or invading their privacy. If a collection agency violates the law, debtors can contact the Federal Trade Commission for help. Generally, the FDCPA only applies to agencies that collect debts for others. The law does not apply to creditors collecting their own debts. However, other federal or state laws may apply to in-house debt collections.
