Debt collection for small businesses

Debt collection is important for all businesses, but it is much more important for small businesses. A large company or company can better weather the ups and downs of economic cycles because they have more financing options. A small business, on the other hand, may not have as many options and a bad debt can bankrupt the business.

It is extremely important that small businesses have a debt collection action plan. Without a printed plan, you are in a hurry with your business and its ability to keep you from bankruptcy. Many companies could have gone bankrupt during the financial crisis with a proper action plan.

How do you decide what is the right course of action for collecting your old accounts receivable? When is it time to start collecting and stop expanding the terms? This may depend on the type of business you have, but a general rule of thumb is, the earlier you start, the greater your chances of recovering the debt. Take a look at the chart below to see the chances of collecting versus the age of debt.

As you can see, the earlier you have to act, the greater your chances of collecting the account. The crucial time for debt collection is 90 days due. The percentages fall by almost 25% and the debt becomes very difficult to collect.

You must do everything you can as a company to recover the debt within the 90-day mark, but be sure to turn the debt into collection before the 90-day mark. This allows the collection agency to conduct their investigations and trade on the debt before it reaches the 6-month period. It is very difficult to recover a debt if it goes beyond 6 months. Most collection agencies do not waste time with a debt that is old. It is difficult for a fundraiser to stay in business because the odds of fundraising are so low.

I wish you good luck in your small business case and I hope you are able to collect all your bad debts. If there is one thing you take from this article, make sure you shop sooner rather than later, your business success may depend on it.