You need to do your due diligence before sending outstanding accounts to collection agencies. Sending accounts too early paints your organization as aggressive and could upset debtors who may not have even realized that they had outstanding debts.
Not sure what to do before you send accounts to a commercial debt collection agency? We’ve got you covered. In this guide, we’ll talk about what you should do before you partner with a collections agency and the rules for sending someone to collections.
What to Do Before Sending to Collections
Follow these steps before you send out an account to collections.
Verify Bad Debt
The last thing you want to do is start the collections process for non-existent debt. You can avoid this by thoroughly reviewing your accounts receivable records to confirm whether there is outstanding debt to begin with. Double check your records to confirm that payment was actually received and that you didn’t forget to record the transaction. Accusing someone of payment negligence is serious; it reflects poorly on your business and will damage your relationship.
After verifying that an account is negligent, resend your invoices. Communications get lost in transit all the time, which is why you should give your client the benefit of the doubt. Approaching your clients in good faith is essential when it comes to any financial matters. The last thing you want to do is make someone feel like a nuisance, especially if they lack the resources to pay you.
Resending invoices is also going to be crucial to supporting you legally, if necessary. Sending out invoices multiple times will show that your organization tried to reach out to the client numerous times before taking more serious action. It will also prove that you were highly concerned with recovering the debt, which strengthens your legal arguments.
Open Communication With the Debtor
Many fail to realize that debt collection is all about two-way communication. Whether you need to call, text, email, or use another channel, start a conversation with your debtor. Never start off by threatening legal action or saying that you’re going to file a lawsuit. This builds an immediate wall between you and the debtor, making successful debt recovery very unlikely.
Start communications off amiably, reminding the debtor about outstanding debts without being condescending. It’s a difficult conversation to have, but one that is absolutely necessary. Keep in mind that healthy AR is vital to the growth and success of a business. Letting debts slide sets a dangerous precedent for your business’s future.
Stay flexible about payment options, too. While you’d obviously like to get paid sooner rather than later, getting paid late is better than never, especially after using the time and resources involved in a lengthy court battle. If the debtor needs allowances in terms of interest or an extended deadline, we’d recommend working with them on it, if possible.
Document all of these interactions. You want to make sure you’re able to present them in court if necessary down the line. Always assume that court is a possibility because keeping legal processes in mind will help you frame your debt collection process and make sure it follows all laws and supports your case.
Work With a Lawyer
If you can’t reach an agreement after opening up communication with the debtor (or can’t get in touch with them), it’s time to partner with professionals. Professionals can help you draft a final demand letter that threatens legal recourse. While you can draft a demand letter independently, a poorly written one can do more harm than good.
Make sure your demand letter follows all debt collection laws and holds up in court by working with a professional to write it. A professional will know exactly what they need to do to create a persuasive demand letter that manages tone and can hold up in court if it ends up being necessary down the line.
Want to Learn How to Write the Perfect Demand Letter?
Here’s our guide to demand letters. In it, we cover what a demand letter looks like, what should be included in it, and how you can write the perfect demand letter!
When Should You Send Someone to Collections?
Unfortunately, commercial debt collectors are unavoidable in some situations, even when you follow all of the steps above. This forces many companies to turn to commercial collections agencies to solve their debts.
Finding the right time to send overdue accounts to collections is tough. Sending them out too early could make your company seem like money-hungry vultures that hardly give clients a chance to settle debts amicably. On the other hand, sending to collections too late erodes the line of communication with the client, making debt recovery difficult. Generally, we’d recommend sending an account to a collections agency after 90 days of negligence, assuming that you’ve done your due diligence in sending regular reminders.
Make Your AR Troubles a Thing of the Past
Tired of struggling with negligent accounts forcing you to record bad debt expenses? Turn to Rapid Collections! Our global team has been helping businesses solve AR challenges since 2003, and we could do the same for you. We’re successful in resolving 95% of businesses collection cases, and you don’t pay until you get paid. In all things, we’re a full-service partner, and can take your business to the next level. Contact us today to make AR troubles a thing of the past.