Small businesses rely on a steady stream of revenue to stay solvent, especially as statistics say more than 50 percent of new businesses fail within the first five years. In accounting language, receivables from customers are called "receivables from customers". In a balance sheet, the sum of the receivables from customers includes all the payments that are due to the company from the customers. For small businesses, bad credit can mean the difference between making a profit and being at a loss. There are many things you can do before issuing an invoice to increase your chances of getting paid. If the credit remains unpaid for a long period of time, you must also follow the appropriate procedures. Debt collection can be a difficult and, occasionally, contentious activity. Read on to find out how to collect small business credits.
Steps
Method 1 of 3: Avoid Bad Loans
Step 1. Specify "payment terms" on each invoice you issue
Many invoices simply say "payment on receipt." You can also add "to 15 days", "to 30 days" or any other time period you expect to get paid.
Putting a payment deadline on an invoice often causes it to be included in the customer's payment cycle, whether it's a private individual or a business. If you do not set a payment deadline, the customer can make the decision to wait a month or two, especially if he is in financial difficulty
Step 2. Do not wait up to 30 days from the date of performance or delivery to send the invoice
Issue your invoices every 15 to 30 days. The best thing to do is set a calendar and check out the company that owes you money.
Step 3. Keep in touch with each company
If possible, route each invoice to the person making the financial decisions, and make sure you have their phone number and extension number, if any.
Step 4. Create a credit management procedure
This must be a procedure that involves all company personnel, so that anyone who talks to the debtor knows what needs to be asked or what needs to be done. It determines at what point an action should be taken, what action should be taken and which path the company should take if the debtor fails to pay.
Method 2 of 3: Collect Credits
Step 1. Call the debtor to discuss the unpaid bill
Identify yourself and say the reason you are calling. Tell the debtor what the due date for the payment was, and ask when you will receive the payment.
Don't be harassing the debtor, just be direct. Always use a civilized tone and try to convey a desire to maintain a positive relationship. You can deal with the consequences later
Step 2. Call back after 15/30 days, if the debtor has not yet paid his debt
Ask why there is this late payment. Ask the debtor if he would like to pay by following a payment plan to avoid charging interest.
Most debtors fall into two categories: either they are having financial problems and currently cannot pay, or they are juggling payments between months depending on their priorities. Try to arrive at the reason for the non-payment in an impersonal way and without making judgments, so that you can bring out a solution that can be mutually accepted by both parties. However, a financially troubled company may not want to discuss its possible bankruptcy
Step 3. Stop all services the debtor receives
The amount of time that must pass before this happens should be specified in your company's general terms and conditions. Call them and send a warning letter before suspending services for non-payment.
Step 4. Calculate the default interest
In Italy, the interest rate applicable in commercial transactions is determined every six months by ministerial decree. There are several free online calculators. It begins to charge interest only when this is legal, i.e. from the day following the expiry of the payment term. In the absence of a deadline, the interest usually begins to run after 30 days from receipt of the invoice by the debtor.
Step 5. Keep track of all contact with the debtor
In the event of a legal action, you will need the date and time of your calls, letters and other communications. You may also need to refer to these letters in your calls to the debtor in order to inform him how long the invoice has been unpaid.
Step 6. Deal with the debtor if you think it is the only way to get paid
** Ask him how much he can pay or offer him a discount, depending on the situation. If you know that the debtor company is avoiding payments, it may be cheaper to give them a discount and never do business with them again than to go to a debt collection agency or lawyer.
Step 7. Write letters of formal notice
Letters should refer to the unpaid account and include past invoices and references to previous communications. While the letters should not be directly threatening, the language must gradually refer to tougher actions if they ignore the bill.
Step 8. Send a "final notice" to the debtor before contacting a debt collection service
The notice should indicate the options the debtor has and the date by which he must respond.
Step 9. Look out for possible news regarding the debtor's bankruptcy
In the event of the debtor's bankruptcy, you can no longer send correspondence to the company regarding their debt. You can file for filing in the passive state of bankruptcy, and wait for the procedure to run its course to get paid.
Method 3 of 3: Choose the Debt Collection route
Step 1. Choose to entrust the credit to professionals
This may be preferable only when the invoice is of a high amount, and you have calculated that it will cost you less to employ a debt collection agency or a lawyer than to write off the outstanding debt and mark it as a contingent liability in your accounting. The following are other avenues that small businesses can choose for debt collection:
- Entrust your credit to a debt collection agency. Give copies of all previous correspondence to a reputable agency. You understand that you will not receive the full amount of your credit. Most debt collection agencies give you around 50 percent of what they collect from the debtor.
- Contact the Justice of the Peace if the amount of the credit does not exceed five thousand euros. Justices of the Peace were designed to avoid excessive legal fees for relatively modest litigation. For amounts up to 1100 euros you don't even need a lawyer, and you can also avoid writing paperwork, because you can make your requests orally directly to the Justice of the Peace, who will record them. But then you have to take care of the notification to the debtor. There will be a hearing before the Justice of the Peace in which your case will be dealt with, so that the debtor can also present his reasons. So if there are no witnesses to hear the case will close in a short time. With the authentic extract of the accounting records you can also obtain an injunction without the need to cite the judgment before the debtor (who can make an opposition). Legal fees will still be charged to the debtor if you win the case.
- Try mediation. The mediation procedure is not mandatory for debt collection disputes. It is useful in the event of a dispute over the amount owed, and can help you reach an agreement. You will have to split the cost of the mediation body with the debtor.
- Use arbitration. An arbitrator is an impartial person who decides a dispute. If both parties agree to address the arbitrator, his decision will be binding.
- Protest the debt securities. If you have a check or promissory note signed by the debtor, have it protested in case of non-payment. With a protested title, you can take the executive action directly against the debtor without needing to sue. In addition, the creditor is placed on the list of protesters.
