The unfortunate truth is that debt is a normal part of most people’s lives. Although having personal debt is stressful for anyone, the fact is that businesses who offer credit services are under even more pressure.
When businesses offer credit services, they are essentially loaning money to their debtors and, although there are contracts in place to ensure debtors pay off their debt, not everyone is as diligent as they should be with their repayments. This has an obvious negative effect on the business’ cashflow which, in turn, affects the business’ ability to pay their staff and make a profit.
This is why debt collection is a necessary part of any business and its day-to-day operations. However, there are different types of debt collection techniques which can be used. In this article we take a look at these techniques.
Successful debt collection depends on the strategy applied by the collector. A debt collector can be someone who is employed by a business, or they can be an outsourced debt collection agency.
Often the most cost effective debt collection method, internal soft collection is when one of your employees issues a demand to the debtor to settle their outstanding debt. This is commonly done telephonically, in an email, or via a letter of demand.
This approach is likely to help you and your debtor to continue with your professional relationship while boosting your cashflow and ensuring a stable future for your business. However, there are some difficult debtors out there who often refuse to pay on-time or simply ignore your requests for payment.
This debt collection method is the same as described above, the key difference is that the requests for payment are issued by an external party such as a dedicated debt collection agency.
External debt collection services, however, will usually cost you a percentage of the debt that has been successfully collected.
With a few exceptions, debtors often feel the pressure when they are contacted by a third party to collecting outstanding debt and are likely to pay sooner than they would with internal soft collection. In terms of the Debt Collectors Act, 1998 ( Act 114 of 1998 ) Debt Collectors may charge fees that are for the debtors account. This will also, in many cases, persuade debtors to pay the account sooner than later.
Professional debt collectors follow a strict code of conduct when pursuing debtors for outstanding debt and follow standard procedures during the collection process. This often assists with preserving the professional relationship between business and debtor and seldom jeopardizes future transactions from taking place.
This method of debt collection should never be the first option. Litigation involves suing your debtor for the monies owed. Although this is one of the most effective ways to get your debtor to pay, it can be a costly affair.
Litigation is not only expensive, it is also time consuming and comes with inherent risks. In other words, you may spend months or even years in court trying to get your money back from a debtor, only to be unsuccessful at the end. Not only have you spent a lot of money on legal services, but you have wasted valuable time which could be spent on finding new, more reliable customers.
Additionally, after litigation, future professional relations between you and your debtor are highly unlikely. Although a non-paying client is not a client you would want to keep, it might cost you more to pursue litigation than it would to keep using soft collection techniques to recover outstanding debt.
We are based in Gqeberha, South Africa but we offer extensive debt collection services to businesses across the country.
To find out more about how our debt collection agency can help you recover outstanding debt, please contact us.
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