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Small Business and the Pitfalls of Not Collecting Your Receivables: How Best to Protect and Collect Your Outstanding Receivables

Posted On: April 07, 2014

The Internal Revenue Service estimates that about 99% of all businesses in the United States are “small,” with fewer than 500 employees. There are approximately 30 million businesses with fewer than 10 employees, making small business one of the driving forces of the United States economy. Unfortunately, at one time or another, nearly every one of these businesses has likely dealt with collections issues.

It can be tough for small business owners to deal with debt collection because they do not have the same resources available as do large corporations. Unfortunately, this often results in small business owners giving up and not pursuing receivables to which they are entitled. There are ways to protect and collect these receivables without it taking up significant time and resources, but you first need to understand legal debt collection.

Having a written contract, Invoice or memorandum of the transaction is important
Having a written contract is important. A written contract makes enforcement of the debt easier. Including a provision in your contract or invoice for recovery of interest, collection costs and attorney fees can be extremely important to your bottom line when choosing to pursue outstanding receivables. Especially in states like New York where recovery of these additional costs must be in writing. Adding the costs of collections to the original debt can make recovery of outstanding receivables more profitable for your business.

Older Accounts are More Difficult to Collect
The longer a debt goes unpaid the more difficult it is to collect. However, certain debts typically take longer to recover than others even when there is no problem. Government accounts and medical accounts typically take anywhere from 60 to 90 days to receive payment, so as a small business owner faced with either situation, you can hold off on contacting a collection agency or taking legal action in these cases.

One of the biggest challenges faced by small businesses is their lack of an official collections department. The business’s accounts receivable clerk is also its collector, which means collections are not their only priority. Sometimes, local credit bureaus offer free support for small business, but this is not always the case and might ultimately not be that much more efficient than just muddling through.

Many times handing your matter over to a collection attorney sooner will enable a debt to be collected before it becomes truly uncollectible.

Another problem small businesses sometimes have when it comes to collecting receivables is not understanding their state’s Check Law. Before accepting checks as payment and before pursuing an unpaid account, be sure you understand your state’s laws governing the procedures for accepting checks.

Establish a System
If you are looking for a simple, organized method with which to deal with collecting receivables, put the following procedure into place:

  • At 30 and 60 days past due, send out past due payment notices. In addition to written notice, phone calls should also be placed.
  • If no arrangements are made for payment by 90 days past due, you can send out a pre-collect notice with various options. This tells the debtor you are flexible, but that further legal action should be expected soon if the account is not settled.
  • If there is still no action, you can either turn the account over to a collection Attorney or take the account to court yourself. Pursuing a debt through litigation can be time consuming, but it is often the best way to recover what is due to your business. Using an experienced attorney will also reduce the time you will need to spend on trying to collect the debt

    If you are struggling with collection of receivables or you have questions concerning your rights as a small business owner, contact an attorney that specializes in debt recovery and collection.

    If you need help in this area or have question contact attorney SPIRIO at 631-277-8844.