By the time that any debt makes it to collections something has gone wrong. Many times there are a number of things that have gone awry in the sales and payment cycle. As a lawyer, I always like to say that a dispute did not reach my desk until things were messy.
There are a number of good tips that companies should employ so that they can increase the chances of actually getting paid, even if things get messy.
- Intake is very important. Companies need to get good quality information when they are setting up new accounts. This includes all of the contact information on the company and possibly its officers or members.
- When applicable, a personal guarantee is very important to obtain. Not only is important to obtain, but its also important to get it renewed every so often. I recently had a client where the personal guarantee was so old and information so outdated, that the guarantee became invalid.
- Keep balances low with companies who you extend credit to. I call this keeping up with your client. If you are net 30 then do not let the client go multiple payment periods without paying. Cut them off quickly and it will not have a chance to get behind. If the client ends up not paying then you are only out one pay cycle rather than many.
- File liens and notices. In states where these documents are required, these need to be send out properly and in a timely manner. Adding extra security will ensure that you are the creditor who gets paid rather then the one who is left scrambling when cash runs out.
- Actions speak louder than words. I know this is cliche, but do not believe debtors when they say they will pay. You must protect your rights and protect your pocketbook. Talk is cheap, so you need to have a very systematic approach when dealing with collections. Everyone is on the same boat and receives the same treatment, therefore you will not get burned.
These are five good lessons on how to increase your return on collections. When you get to the process where collection firms and lawyers are involved, the waters get even more muddy. To add to my cliche-ridden post, an ounce of prevention is worth a pound of cure. Here being proactive will keep your money flowing in and less flowing out. Collection agencies and lawyers require lots of money to hopefully collect your money.