5 Debt Recovery Tactics All Small Businesses Should Use

Small business owners who are just starting out have many preconceived notions about what it looks like to run a company. For one, many believe that by treating people fairly, the company will get a fair and respectful treatment from the customers. While that’s true for the most part, you will quickly find out that not all customers are willing to pay the money they owe, either partly or in full. In fact, you can expect to come across many debtors whom you will have to remind over and over again that they owe you money.

This is not a favorite position to be in, especially when you’re struggling to maintain a positive cash flow and reduce expenses in your business. Ask any experienced business owner and they will tell you that you need to have a debt collection plan in place that consists of effective tactics that you can use to prevent late payments, incentivize people to pay early, and collect the debt with ease.

With that in mind, let’s go over the five debt collection tactics all small business owners should use. 

Create a clear and concise payment policy

Effective debt collection begins with prevention. It’s always better to prevent late payments instead of trying to deal with them later on, which requires time, effort, and other resources you may not have available as a small business owner. To that end, you should focus on creating a clear and concise payment policy that will define all the payment terms and conditions that the customer automatically agrees to when they pay for your products or services. 

It’s important to post this policy on your website and make it easily accessible for your customers and clients online and in your physical store or office space. The policy should define the concrete payment terms, the payment date, interest rates and other fees, late payment fees, the payment methods you accept, and other relevant business information. 

Set up an automated invoicing system

In the modern tech-driven world, many customers prefer to have some payment flexibility, and at the very least, they want to be able to pay via credit card. There are many other payment systems out there, but regardless of how your customer chooses to pay, you should send out your invoices immediately and give them enough time to settle their debt. You can do this easily with an automated invoicing system.

Using the right business tools and tech can help you save money and improve operational efficiency, and this system is great for handling invoices quickly. Whether it’s a recurring payment or a one-off transaction, you can use the system to tailor your invoices to the needs of the customers, set reminders, include important details and information, and schedule your invoices to be sent out automatically. You can even use the system for automatic follow-ups. 

Rely on skilled and experienced legal help

Every small business should have a skilled legal team or a talented legal expert at their disposal, to help ensure complete legal compliance, minimize legal liabilities and risk, and just help you run a smooth operation. What you might not have known, though, is that the right legal expert can help you collect outstanding payments from your customers quickly and with no legal risks. 

Working with legal representatives is especially important and effective in those competitive markets, like Australia. In fact, Australia is a great example of how small business owners handle this problem, as they will work with experienced lawyers in Sydney who can reach out to debtors and collect the outstanding payments in their name. 

This is a good practice for many reasons, but most importantly, it puts your company out of the spotlight and lets the lawyers handle the problem in a safe and efficient way. Make sure to use this example to find local lawyers in your area with experience in debt recovery.

Send out friendly reminders and follow-ups

It’s always a good idea to give people the benefit of the doubt, and consider the possibility that they forgot to pay or simply don’t have the means to do it right now. You don’t want to chase debtors around, not when you’re trying to manage your finances properly – you want to motivate them to settle their debts, and to do that, you should send out friendly reminders.

Do this several days before the end of the payment period to remind them to complete the payment in time. If they breach the deadline, send out another reminder, and continue doing this every couple of days. If you’re trying to withdraw funds from their account through direct debit payment, then remind them that your system will continue trying to withdraw the funds until it’s successful.

Incentivize early payments with perks and discounts

Of course, you can also capitalize on early payers and get a much-needed cash boost quickly, but only if you provide the right incentives. People love a good deal and they will take almost any chance to save some money, which is your opportunity to inspire them to pay early.

You can work closely with your financial manager to see how much of a discount you can offer on early payments for recurring customers. You can also offer store vouchers and special deals, and you can offer non-monetary rewards if you can’t afford to give out discounts. The possibilities here are numerous, so consider offering various perks to motivate people to pay early. 

Over to you

As a small business owner, you need people to pay on time. Sometimes you’ll have to collect debt from them and sometimes you will be able to get them to pay early or by the due date, but to do any of that, make sure to start using these effective tactics today.

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