Jul 08, 2020

How to Send Someone to Collections

As a small business owner, you work hard every day to help your business grow. After the long hours and mountains of stress, you deserve to get paid for your efforts. Unfortunately, as you likely know, not all customers and clients hold up their end of the bargain. You do the work, but they don’t seem inclined to pay for it. 

So what can you do? 

When you find yourself in this situation, it may be prudent to send your wayward customer to collections. While it’s an unpleasant choice, collections may be the only one you have left. But before you proceed, you’ll want to know what you’re getting yourself into.

What Does It Mean to Send Someone to Collections?

“Sending someone to collections” is a colloquialism used to describe the process of hiring a collection agency to track down payment from someone with a delinquent account. Typically, it’s a last-resort solution to collect money owed to you when all other options fail. 

Steps to Take Before Collections

Before you jump the gun and needlessly send an unwitting customer to collections, you’ll want to ensure you’ve done all you can to collect the money owed to you. Before involving a 3rd party, make certain you’ve completed as many of the following actions as possible.

Wait 90+ Days

It’s good practice to wait a couple of months before sending someone to collections. There are countless reasons a client may not have paid you, but you might be surprised to see they will still pay up if given enough time. Waiting 90+ days is standard practice for many businesses and giving your customers that extra time might be the difference between a positive customer experience and some hard-hitting negative reviews. 

Also, it’s a good idea to review your payment terms before acting. You may be surprised to see that the invoice you thought was 60 days late may only be half of that due to a net 30 payment term.

Resend Invoices

Whether you use digital invoices or design and send them out by hand, you’ll want to send the invoices again if the payment deadline is approaching. It’s possible the invoices went directly to spam or that they were accidentally thrown away because the letter got tucked in with the junk mail. 

Sending additional invoices gives customers who normally pay on time an extra chance to do right by you and your business.

Send Reminders

Similar to resending invoices, sending your clients or customers friendly reminders to pay up is a great way to encourage them to do just that. Don’t be afraid to send them gentle reminders through whichever medium makes sense. 

One thing to keep in mind with your reminders, however, is to use friendly and encouraging language. Don’t threaten legal action yet and don’t try to intimidate your customer into paying. More likely than not, using forceful language at this stage will result in a negative customer experience and may even make them less inclined to pay you.

Make Phone Calls

If your customers haven’t responded to your invoices or friendly reminders, it’s time to reach out to them over the phone. See if you can get the individual responsible for handling the account and payments on the line to let them know the account is delinquent. 

If all goes well, this should be the last step you need to take to get paid. If not, the next 2 steps move you closer to pursuing a more severe solution.

Talk to a Lawyer

Once all other efforts have failed, it’s time to seek legal counsel. Your next step is to reach out to a small business lawyer and get their advice. You don’t want to file a lawsuit or hire a collection agency without a legal professional by your side. 

Send a Demand Letter

A demand letter is a formal, legal document drafted by your lawyer requesting payment. It can be an email or a physical letter, but it will be sent to your customer, detailing expectations and consequences. While this particular letter may not be necessary for future legal action, it is still one that may come in handy if the process escalates to that point.

If these steps fail to produce the desired outcome, it’s about time to get a collection agency involved.

How to Find a Collection Agency

When you’ve finally exhausted all other options, it’s time to call in additional help. Collection agencies are a company hired to help you collect the money you’re owed. Before you hire one, take time to follow these 3 steps.

1. Do Your Research

The first step in finding a good collection agency is to do your research. Take time to ask friends and family, fellow small business owners, or other trusted individuals about their experiences with a particular collection agency. Do a quick online search to identify agencies nearby, see how long they’ve been in business, and determine the rates they charge. 

2. Look at Reviews

The fastest way to get a good sense of how a collection agency handles its business is to dig around for reviews. While it may take a bit of sifting through reviews left by disgruntled payers, you should be able to find some left by business owners who went through the same challenges you face. 

3. Search for an Accredited Agency 

Doing a search with the Better Business Bureau is a great way to find a reputable collection agency. After checking the “Show BBB Accredited only” box in the search menu, you can generate a long list of agencies with the BBB’s stamp of approval. Choosing one from that list may prove a better choice than using a company like Bob’s Collections and Fishing Emporium down the street.

A Final Reminder

When it comes to collections, it’s a good idea to put it off for as long as possible. Negative reviews, poor customer experience, and paying the collection agency between 25–50% of the amount collected are all good reasons to avoid the process if possible. In short: Don’t do it if you don’t have to.

About the author

Bjólan Holyoak
Bjólan Holyoak
Bjólan Holyoak is a small business finance writer based in Utah who believes that with the right panache, financial information can be as much of a "breath of fresh air" as a hike in the Utah mountains.

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