“How does a person collect from someone that owes you money, but is no longer a customer?”
Sometimes the questions create discussions in themselves. And we enjoy being the source they turn to in order to understand the steps and the options they have available.
Depending on the situation, we have compiled three different methods to eliminate or decrease “uncollectable” balances when the need arises.
Collection agencies are around to “encourage” delinquent customers to pay their outstanding balances. Their techniques range from writing letters to continuous phone calls, and I have seen some collection companies inform the credit bureau that there is an outstanding balance owed. The customer might eventually want to purchase a vehicle, or perhaps a home, and this strike will be on their record until they “rectify” the situation. If this is decided as the option to take, then we easily submit the amounts owed, and write off the accounts receivable balance.
Keep in mind that there are many collection agencies to choose from and each one has different methods they use to try to collect. They also have different fee structures that range from 25% to 50% of the balance owing. Finding the one that fits with your business can take a little time, but can also be worth every moment spent doing so.
Small Claims Court
You have the option of filing a Small Claims Court action if the debt owed is less than 2 years. The cost to file (at the time of this article) is $75.00. Ultimately, the result is to get a judgment in your favor and possible garnishing the wages so that payment can be made. This can ultimately be a long and drawn out process that can be costly by the time you factor in the cost of your time, effort, legal fees (if you choose to take that option), and possibly no guarantee in the end.
Any debt older than 365 days should be written off and removed from the accounts receivable. Not all professionals believe in taking this step, nor does every customer, as they want to see who owes them and the age of the debt in question. If the customer chooses not to write off the balance from the accounts receivable, we would recommend creating an allowance for doubtful accounts and explain why this is important. Writing off non-collectable balances and putting policies into place to eliminate the debt from ever occurring is an option that you can pursue.
While taking one daycare on the Journey to Profitability, we took the time to explain the options available and they reflected and decided on a combination of all of the above options depending on the amount owing. Ultimately, as a business owner, we take our lumps and learn from the experience. And this is what happened in this situation.
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Until the next time,