Debt collection can be tricky. On one hand, you want to maintain good customer relations and goodwill, but on the other you want to remain fiscally responsible and collect debt on past due accounts.
Most important is your small business's reputation in the community. Be sure you don't act unethically or harasses your debtors as that may lead to lawsuits can seriously damage your own business’s reputation in the community. A bad reputation can also have the negative consequences of losing customers and profits. Below, you will find information on debt collection limitations, debt collection methods, and sample demand letters.
Debt Collection Limitations
There are both state and federal laws that regulate the manner in which debt collection may occur. Federal laws are in place such as The Fair Debt Collection Practices Act (FDCPA). The FDCPA prohibits a debt collection agency from using abusive, unfair or deceptive practices to collect past due debts from customers. Keep in mind, FDCPA applies only to debt collection agencies and not the creditor.
How to Collect on Customer Debt
As a creditor, there are a number of different methods you can utilize to collect on past due accounts. You can offer to settle for a smaller amount. You can hire a debt collection agency. A good first step is to write a short letter to the customer, explaining that you are attempting to collect on a debt.
Creditor Demand Letters
If you are a creditor, you will find the following three sample demand letters very helpful. These letters are intended to be a starting point and should be tailored to fit your particular circumstance. Keep in mind that some claims must be brought within a specified period of time. You should seek the advice of an attorney to determine if you have a valid claim or if you are unable to collect the debt yourself.
INITIAL COLLECTION LETTER
This letter is a friendly reminder that payment on your account in the amount of $________ on your account was due on ________. If you have already sent us your payment, kindly disregard this letter. If not, please send us your payment promptly.
FOLLOW UP COLLECTION LETTER
This is our second reminder that payment on your account in the amount of $________ on your account was due on ________. We value your business and hope to keep you as a customer. However, we do require payment according to the terms of our invoices. Please send us your payment promptly.
FINAL DEMAND COLLECTION LETTER
This is our final reminder that payment on your account in the amount of $________ on your account was due on ________. If we do not receive payment in full by _____, we will submit your account for collection.
Get Legal Help with Your Debt Collection Needs
If you need assistance writing a demand letter or have exhausted all options and now need to file a lawsuit, you'll need legal advice. Contact a skilled collections lawyer to help you craft a debt collection letter or file a lawsuit in order to recover the debt.