The world would have been so much more beautiful and conducting a successful business would be so easy if all our customers paid off their debts on the given due date! Well, unfortunately, that is far from reality. Businesses find a large portion of their earnings trapped in debts which causes the business to go off-track. Nobody can understand the importance of prompt payments better than businessmen themselves. You have to be prepared for situations in which your clients don’t pay off on time and even for cases in which they simply refuse to pay at all to keep your business on track.
The B2B debt collections are very different from the B2C debt collection cases. In B2B debt collections, the invoices and contracts involved are complex. You have an established relationship with a company at stake which makes it a lot more difficult to claim your money.
Here a few points you must keep in mind when dealing with B2B debt collection cases:
Avoiding Debt Collection
Conduct your business in a systematic manner in which every single conversation, whether face to face or on the telephone with other firms are recorded and all the emails are archived. A solid system of communication must be your first step in B2B debt collection.
Once the invoice due date is over, start with a less aggressive approach. Make sure to update your records after every conversation regarding the debts. Planning how to handle the dues beforehand is pretty common for businesses nowadays. Also, active communication with the debtor can lead to various payment arrangements such as discounting or restructuring the payment schedule itself. This communication trail will come into play in case an attorney or a collection firm is involved in the future.
Issuing a demand letter
It is common practice to begin B2B debt collections with a demand letter. A demand letter is a formal circular which lets the debtor know about your seriousness regarding the collection of the debt. It constitutes evidence of your attempt to collect the debt peacefully. A proper demand letter must include some prerequisites such as the name of both the parties involved, complete information regarding the debt, and a deadline such that failure to pay on the mentioned deadline would result in legal and forceful ways to collect the debt.
Going for More Aggressive Debt Collection Methods
When you have exhausted all your sober methods, it is time to involve an attorney or a professional collection agency in the story.
Understand that by involving outsiders into the case, you will not be able to collect 100% of the debt. This is because you need to pay the hired professionals their fees and also because in these cases the probability that the company in debt will pay the full outstanding amount is usually very low.
In a few cases, the company may even file for bankruptcy and delay the payments until the filing process is completed. Your next step would be deciding on whether you want to involve an attorney or a collection agency.
Comparing Between an Attorney and a Collection Agency
When you bring these professionals into the scene, the debtor is more likely to take you seriously. A correspondence sent from an attorney has a greater impact than that sent by a collection agency.
Since an attorney costs higher than an agency, it is not advisable to hire him if the debt is less than $5000 as it won’t be worth the cost. For higher amounts, you can add the attorney fees and the court cost with the debt being collected.
Go for collection agencies when the debt is less. Find an agency that specializes in your business field. Their knowledge and experience in a particular field might be valuable for you. You must check the agency’s fee structure beforehand to avoid any misunderstandings in the future. Also, check if the agency has a proper license and their insurance policies. Every agency has a unique fee structure. There are some agencies that charge you only after the debt is cleared. Usually, their fees in these cases are a percentage of the debt amount. Know more about their work practices here.
Bear in mind that the use of any dishonest means by the agency or harassing the debtor is illegal according to the provisions of the Fair Debt Collection Practices Act.
Taking the Company In-Debt to Court
Taking your case to a small claims court rather than involving an attorney or collection agency is a good idea in some cases as you won’t have to share a percentage of your collected debt with an outside entity. The cost of court filing is also comparatively lesser.
However, you must know about your state’s maximum amount which you can sue. Each state has a separate maximum value that can be sued. For example, if the maximum amount for your state is $15000 and if your case involves debt of $20000, you will claim only $15000 and the rest would have to be written off. Also, check your state’s statute of limitations which is usually in the range of 2 to 15 years. The relative cost involved is in hundreds unlike thousands involved when hiring agencies or attorneys. But the cost varies from state to state.
When you take the case to court, since there are no outside entities involved, you yourself would have to arrange for everything and contact the debtor to let him know he is being sued for a debt. In case of no response from the debtor, you can seize their wages. But if the debtor is unemployed, you can claim your right on their personal property.
Which Route You Must Take?
If you feel you will need assistance in collecting your debt and save yourself from all the hassle, then you must hire an attorney or a collection agency. Choosing between a collection agency and an attorney is an important step and is dependent on several factors. Talk to both, let them know about the gravity of your situation and get an estimate of the cost involved. Then go for whatever suits you best.
However, if you want to save money and also have the required caliber and time to deal with everything yourself, then you can go for small claims court. As business persons, none of us would like to waste your time, efforts and resources on the collection of B2B debts but B2B debt collections have to be handled in every business, so, it is better to be prepared.