The efficiency of debt collection is the difference between a business that will succeed and a business that closes up. If you do not have control of your debt collection then you will eventually fail. All businesses that grant credit will be faced with the problem of bad debt at some stage. The best way to deal with bad debt is to have a good debt control system in place. There are three types of bad debt: - Can pay.
This is where your debtor can pay but will drag out non-payment as long as possible. They do intend to pay but only at the last moment. - Can't pay.
This type of debtor have no means of paying the debt either momentarily or ever. They are not necessarily avoiding payment but do not have the means to do so. - Won't pay.
This type of debtor is the worst. They will try to get away with not paying, know the debt collection routine and will not pay until the matter goes either to court or through a debt collection agency. The solution to this is to get your money when it falls due or have a collection procedure that does not let your debtors get away with anything. Once you stop chasing the money that is due to you the amount owing to you will increase. The longer you allow a debt to remain unpaid, the less chance you have of recovering it. There are three ways to collect debt: - By yourself.
This is the least costly method and involves phoning the debtor, sending letters and as a last resort, going to court to have the debt paid. - By a lawyer.
This involves having your lawyer send letters of demand before it is taken further. A fee will be charged dependent on how long it takes for the debt to be recovered. If going to court is involved and your debtor is forced to pay you through a court order your legal fees could be recovered. However if not, then you will have to cover the court costs as well. - Debt collection agencies.
These are firms such as Baycorp, who specialise in the collection of debts. A percentage of the amount collected is taken as a fee. If the debtor does not pay the debt it will usually affect their personal credit rating. |
