The Right Way to Collect on a Small Business Debt

When you enter into a contract with a client, partner, or supplier, the expectation is that both parties will honor their agreement. Unfortunately, this doesn’t always happen. And if you find yourself in a situation where you’re owed money, it’s important that you collect on the debt as soon as possible.

How to Get Debtors to Pay Up

According to, there are three categories of clients when it comes to debt collection: (1) those who have lots of payments due at once and pay them off sporadically; (2) those who normally pay on time, but can’t because of temporary financial trouble; and (3) those who will go to any length to avoid paying.

The first two types of debtors are okay. It’s the third category that you want to avoid. And when you do occasionally run into them, the following tips and strategies will help you collect:

1. Stay Calm

This first step may seem like the least practical tip, but it’s arguably the most important. When a client owes you money, the last thing you can afford to do is send an angry email or stop by their office and threaten them. Instead, it pays to take a calm and calculated approach.

You have to recognize that you probably aren’t the only business your client owes money. If you get angry and hostile, they’re apt to move you to the back of the line. The more courteous you are, the more likely they are to pay off your debt quickly as a sign of appreciation.

2. Document Everything

When money is involved, you need to have a paper trail. Should you ever be forced to pursue legal action, your ability to present concrete evidence of contracts, service agreements, receipts, etc. will prove beneficial.

It’s also important to document your efforts to collect. A simple paper log with dates and times that you contacted or visited debtors will show your commitment and could increase the chances of being able to collect in the future.

3. Conduct a Hidden Asset Search

When a client continually refuses to pay, your last resort option may be to take them to small claims court. And while this may render a judgment in your favor, it can also be costly and time consuming.

Before pursuing any sort of legal remedy, conduct a search to find hidden assets. This will let you know if the individual even has any assets. If they don’t, all of your efforts will be wasted.

4. Hire a Collection Agency

A final option is to hire a collection agency. While this is far from ideal, it may allow you to get a fraction of what’s owed to you. There are typically two types of collection agencies. In one scenario, the collection agency takes a percentage of whatever they collect. In the other, they actually buy the debt from you at a discounted rate and then you’re totally out of the picture. Then, they negotiate with the client and attempt to collect more than what they paid you.

When hiring a collection agency, the key is to make sure you do your due diligence and find one that’s honest and reputable. The last thing you can afford is to get taken advantage of again.

Stand Up for Your Business

Collecting on a debt that’s owed to your small business can be a little awkward in some situations. This is especially true when you’re really close with your clients and want to maintain a healthy relationship. The last thing you want is to offend them or scare them away. However, you need revenue in order to keep the lights on.

The methods highlighted in this article should allow you to collect on debts appropriately.