Top 5 Things to Avoid When Collecting a Debt

One of the hardest things you can do as a business owner is to have to collect a debt from a customer. Here's how to navigate those types of situations with ease.

Adobe Stock 95693962 - Olivier Le Moal

One of the hardest things you can do as a business owner is to have to collect a debt from a customer, especially if it’s a long-term customer who you’ve developed a relationship with over time.

While there are endless reasons why a customer can become delinquent on their payments, the most frustrating part of the whole situation is the lack of communication. It’s been my experience that long-term customers don’t just stop paying their bills, they stop communicating.

When you know your customers intimately this can make you ask the question, “Why?” Why no communication along with with no payments? Where did I go wrong in the process?

To help you navigate this situation with ease, here are some areas to avoid when trying to collect a debt.

1. Follow up; don't harass

There’s a fine line between following up on a payment and harassment. Never harass a customer—it’s just that simple. Harassment is considered calling the customer at all hours of the day or night, using abusive language, or making threats. This type of behavior is counterproductive and could get your business in trouble.

Instead, try setting up a process where you follow-up in specific ways at specific times. Example: start by sending a reminder letter in the mail, then follow up by email and then call. Making sure there is enough time in between for adequate response on their part.

The goal of the process is to get paid, so make sure you are using methods that are tactful and respectful.

2.  Be factual; no false statements

A business should never make false statements when trying to collect a debt from a customer. This includes misrepresenting who you are, the amount owed and threatening to take them to court (also known as putting a lien on their property).

Even if you choose to turn an account over to a collection agency, they should be given accurate and timely information to avoid misrepresenting your business. All statements that come from you or a representative for the business should be factual.

3. Social media is NOT your friend

One of the worst ways to go with debt collection is public shaming. Posting the customer’s name or debt information on social media (or in a public space) is just taboo. This also goes for discussing the debt with anyone other than the person who owes the money to your business. Transactions of money between a business and a consumer is a private matter and should be kept that way.

4. Know the law

While collecting a debt can be important to the business, it’s important to not break any federal or state regulations during the process. A business should take the necessary steps to know and understand the rules of debt collection both locally and federally before starting to collect a debt. Illegal actions that violate the Fair Debt Collection Practices Act (FDCPA) can result in charges and/or fines for your business.

 5. Don’t discriminate

Take measures to make sure your business (or anyone representing it) never discriminates against a customer when trying to collect a debt. Discrimination is considered using language or taking actions based on a customer’s race, gender, religion, and so forth. The last thing a business needs when trying to collect a debt is to end up in a legal dispute because of discrimination.

When in doubt on how to handle collecting a debt, seek the assistance of a third-party collection agency. While it may seem as more hassle than it’s worth, that’s simply not true. Using the right collection agency can help your business avoid crucial and costly mistakes that could cost your business even more money and potentially ruin reputation.

Collection agencies conduct ongoing training by staying up to date on any changes in regulations at the federal and state level. Properly trained and professional debt collectors can also mediate financial disputes between your business and your customers. Their primary goal is to get your customer to the table and be part of the resolution.

By understanding the mistakes that can happen during the debt collection process and taking action to put a process in place to know and understand the law, you are taking the first step toward successful debt collection that can keep your name and business intact.