Our commercial litigation lawyer understands that many small businesses have trouble collecting debts that are owed to them. Outstanding invoices and problems with collections are the reasons why many small businesses fail. If you are having trouble getting people who owe your business to pay their outstanding debts, there are several tactics you can take in order to encourage payment. If you still are unable to get the businesses and people to pay what they owe, you may need to get the help of a business attorney in New Jersey to try to recover what is owed to your business.
Understanding the Different Kinds of Customers Who Pay Late
Generally, business customers who pay late tend to fall into one of three major categories. Understanding which type of customer with which you are dealing is important. The categories include the following:
- Those that are having financial difficulties currently but who normally pay on time
- Those who owe many payments simultaneously and who pay, but who do so sporadically
- Those who had no intention of paying in the first place or of ever doing so
When dealing with new customers, it is important for you to figure out under which category they may fall. If you believe a customer is one who will do whatever is necessary to avoid paying you, you will need to act very quickly if their payment is late. You may want to avoid the issue by demanding full payment up front. In general, customers who fall into one of the first two categories are ones that you will likely be able to work with, since both have demonstrable histories showing at least partial payments. If your non-paying customer appears to have no intention of paying you, you may want to contact a business attorney in New Jersey who practices collections law. With any customer who owes money, the important thing to remember is that you need to act fast. You should always make sure to send regular bills and invoices to customers who have outstanding balances. Send them as soon as they become due and don’t wait until the end of the month arrives.
How to Handle Collections
There are some important things you need to understand when you need to collect on a debt owed to your company. You need to make certain you are careful so that collection is more likely and you won’t be subjected to legal action by the customer who owes you money. Here are some steps you might want to take.
Don’t Harass the Debtors
One issue some small business debtors run into is harassing those who owe them money. If you call, limit the calls to no more than once daily. Do not threaten them or speak badly about them to other people. This is a good legal approach as well as just good customer service.
Keep Your Phone Calls Straightforward and to the Point
If you get your customer on the phone, behave professionally and get right to the point of your call. Do not use personal attacks, but just state clearly the amount that is owed and ask them to pay you. Stay calm and keep your phone call short.
Send Demand for Payment Letters
In addition to making phone calls, you should also send letters to customers with outstanding balances demanding payment for what is owed. You should save copies of your demand letters and provide them to your attorney or a collection agency if you need outside help with collecting the debt.
Ask for Help with Writing and Sending Demand Letters
Collections agencies and debt collection lawyers are accustomed to writing and sending demand letters. They may draft them and send them for you, each letter of increasing intensity. This may help inspire those who owe you money to send the payment they owe.
In the case of a customer who is unlikely to be able to pay the full amount they owe you, you might want to consider offering to settle the debt for less than the full amount owed to your business. If you choose to do this, it is important for you to memorialize both the settlement offer and any agreement reached in writing. An attorney may help you with this.
Getting Outside Help
If it looks as if you will have trouble collecting anything, you might want to get help from either a collection agency or a debt collection lawyer. While both may take a fair portion of what they are able to collect, getting paid something rather than nothing is preferable.
Small Claims Court for Smaller Debts
Small claims court may be an option for your business if the debt owed to you meets the small claims court statutory limits. These courts allow you to file a complaint against a customer who owes money and who is not attempting to pay despite your collections efforts. Small claims court also allows you to avoid higher court costs and attorneys’ fees associated with other, higher court divisions. Among the filings in small claims court, as many as 60 percent are made by small businesses.
Filing a Civil Lawsuit
If all else fails and the amount owed to your business does not meet the statutory limits for small claims court, you can file a lawsuit in a higher-level court to try to collect on the debt. You should expect to have higher costs associated with filing a lawsuit, including court costs and attorney fees. Those may be less than the amount a collection agency might otherwise charge, however, as collections agencies may charge as much as 50 percent of the debt owed to your business. If you believe you need to file a debt collections lawsuit, you may want to get help from a business law attorney for drafting, filing and litigating your complaint.
Contact a Commercial Litigation Lawyer
To speak with a commercial litigation lawyer about small business debt collections, call Snellings Law LLC at (973) 265-6100.