How to Collect Bad Debts

How to Collect Bad Debts
••• Flickr

If you own a small business and frequently deal with clients, you might encounter a few late payments and non-payments. But fortunately, there are ways to deal with unreliable clients. Rather than write-off non-payments and lose money, take steps to collect the money owed. You can employ several tactics, which may persuade clients to submit their past due payments.

Notify the customer by phone or letter. Often times, a simple phone call or past due statement prompts customers to submit a payment. What's more, telephoning the customer and leaving non-threatening messages may also move a customer to pay a past due balance.

Agree to a new payment arrangement. If the customer can't pay the bill, agree to new payment terms. Propose a debt settlement, in which the customer submits a one-time lump sum for less than the balance owed. In return, you agree to cease all collection attempts. You can also extend the loan term or reduce their minimum payment, which increases affordability.

Hire a collections agency. Business owners are busy, and they are usually unable to devote a lot of time to collection attempts. Contact a debt collection agency and ask them to handle the account. Reputable collection agencies include Rapid Recovery Solutions and Direct Recovery Associates (see Resources below). They'll contact the customer by phone and mail collection letters. If their attempts are successful, you agree to pay the collection agency a percentage of the money.

Pursue legal action. If letters, telephone calls and hiring a collections agency doesn't result in repayment of the debt, it's time to seek legal action. Contact an attorney and ask them to write a letter. Choose an attorney in your local area, ask friends and family for referrals or use a lawyer directory (see Resources below). However, make sure the attorney has debt collection experience. If the customer still doesn't respond, request a court date and have a judgment placed on the customer's credit report.