The thorny world of collecting outstanding debt is no fun for anyone involved.
As a business who counts other businesses as clients, you will eventually have a client that fails to pay. Whether your business mostly serves individuals or other companies, some of the same rules apply. You still have a debate to pursue action. Factors at play include:
- How much is the debt?
- Were the terms clear? (Is the customer obviously avoiding payment they agreed to.)
- Can you make sure to comply with laws and ethics in collecting this debt?
Assuming the debt amount is worth your time to pursue, the client obviously owes you the money, and you are willing to take necessary steps to stay in compliance with State and Federal laws, then here is how one should proceed.
- Contact an attorney to help your business set up processes and policies to follow.
- After being fully prepared by an attorney, you should send a formal registered letter to them stating that they are a certain amount of days past due. You would love to keep them as a customer, and you are willing to work with them in regards to a repayment schedule. However, failure to pay may force you to take certain actions. (Such as, your refusal to provide continued services, their exit from your internal credit program, or even legal collection.) Make sure any communication you send is reviewed by an attorney, as wording something incorrectly can not only put you in hot water, but end up costing you damages.
- If there is still no payment, refer to your agreements. Did you require mediation or arbitration? If so, you may think about beginning this process.
- Should the last step not bring resolution, you could contact an attorney about bringing a suit against the offending party.
Keep in mind that State and Federal laws that govern debt collection may be at play. Further, it is a best practice to stay professional at all times. Do not harass them or take it personally.
One alternative option to keep in mind is working with a collections agency. You should be careful when selecting a collections agency. If an agency violates a law on an account you assigned them, you may share liability for that violation.
When selecting an agency ask for the following:
- Does the agency hold certifications from the largest industry associations?
- Does the agency hold appropriate insurance policies and/or bonds that protect the debtor, the agency, and you?
- What methods does the agency primarily employ?
- What steps has the agency taken to ensure legal compliance in the methods it employs?
Lastly, a business can always explore resolution via their accountant. In some cases, businesses can obtain a tax write off for outstanding debt.
Should you need to pursue unpaid debt from a business client, we recommend contacting a competent business lawyer.