Small Business Debts: Learn the right Way to Deal With Debts

One of the biggest challenges small business owners face is dealing with the debts owed by their customers. However, there is a right way and a wrong way in dealing with debts regardless of the size. In this article I am going to talk about some of the strategies that you can use to improve your outstanding debts.<br><br>The simplest method to decrease debt is to not provide credit or to limit the amount of credit a customer can have. It is quite simple if you can't afford to have customers paying you off over a period of time then you simply will need to have them pay upfront.<br><br>Many small business owners fear declining credit but in the end, if they aren't paying their bills then you are going to go broke. You need to choose clients who meet your circumstance and will pay you on time. Another strategy you can use is to factor your debtors. This is where you sell your invoices to a factoring company who will give you an amount up front for your customer's bill and then give you the rest when they pay less a fee. This is often a cheaper method than using overdrafts.<br><br>However learning how to deal with debts in a positive manner is by far the best way to deal with them.<br><br>Many companies who complain about unpaid debts simply haven't followed up with the customer to get paid. Chasing an unpaid account is extremely important to ensuring that your income to debt level is managed effectively.<br><br>This is a skill that you need to master otherwise your business will find it difficult to survive financially.<br><br>There are some basic steps that if implemented will help you improve getting paid on time.<br><br>Step 1. Invoice your customer on the day of the purchase. If possible give the client the invoice straight away. Ensure on the invoice that the date of the invoice is to be paid (the due date) is in red and bold. We know that when the Date Due is in red and bold that this increase payments on time by upto 60%. Prior to the purchase make sure the customer knows your credit terms.<br><br>Step 2. If your terms are 30 days and payment has not been received then ensure that you send a statement to the client.<br><br>Step 3. By day 45, if you haven't received payment then send the client a reminder notice. Do not make it strongly worded, just simply remind them when payment is due and that payment would be appreciated.<br><br>Step 4. At day 55, this is the time for some personal contact. Telephone your client and ask them for payment. Be cordial and simply ask them to make payment. If they can't make a full payment, ask that they make a part payment.<br><br>Step 5. After 60 days it is now time that you issue a stern letter that if payment is not received within seven days that the account will be put on a credit hold and further action will be taken to get payment<br><br>Once the account gets to 90 days then you can do one of two things. First you can engage a collection agency to collect the outstanding amount or alternatively you can take the customer to small claims.<br><br>I have found that most companies achieve great improvements in their debt collection just by adding a due date in red and by focusing on talking to their customers to get payments. <br><br>All small business owners get stressed over outstanding money, however if you work with your clients and talk to them most people will do the right thing. Also make sure that when you start a relationship with a new customer that you specify clearly the terms and conditions of doing business.

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