Running a business can be hard. It’s not as simple as exchanging goods and services for money; there are several other factors that you need to worry about. Among these factors are the people you do business with.
Sometimes, a business allows its clients to pay for their items using credit. When this happens, the customer borrows money from his (or her) bank to pay off the necessary amount while coming to a separate payment term with the financial institution. In exchange for the loan, the bank will add a small percentage to the amount it covered to make a profit.
Unfortunately, there are times when the client is unable to pay the bank, and in some cases, it also leads the bank to take back the money it lent to pay you. While there are professional collection services that can take care of these for you, it wouldn’t hurt to try getting the money back yourself first. Here are a few effective strategies you can try in collecting the debt:
Review customer records.
Ideally, you review customer records before you hand out credit so you can first verify if the customer has the capability to pay back the said amount. However, situations are different when they happen in real-time, and it can be possible to offer a credit transaction before doing any background checks.
When checking customer records after credit has been issued, you learn to strategize how to approach each client and talk to them about paying back the owed amount. For instance, some debtors consistently pay off their due amounts, but you can see on the record that payments suddenly stopped coming after a certain date. In such cases, it more likely that an emergency or sudden change in the client’s financial or personal situation has affected his (or her) recent paying behavior.
For clients that generally exhibited good payment behavior before missing payments, you can try to communicate and ask what’s going on. It can also strengthen your relationship with the customer by showing him (or her) that you also care about him (or her) and not just the money.
You can bargain with collateral.
If you haven’t heard of hard loans yet, these are transactions wherein a debtor presents a valued asset as collateral before making a loan for a significant amount of money. Hard loans are usually met with properties as collateral, from residential units to commercial building services. This way, even if the debtor fails to pay the investor, the assets can be sold off to get back the loaned money.
You can do the same to curb potential losses. Before starting a transaction with a client that has a questionable payment history, you can ask for valuable collateral to make the deal fairer for both sides. The more value the collateral has, the higher the chances are of the client being cooperative and paying on time. If the customer deliberately quits on his (or her) payment, at least you have a fallback option by selling his (or her) collateral assets.
Try to offer alternate payment terms that might better suit the client’s current finances.
There is not much you can do if the debtor is really in a financial bind. Sometimes the best you can do is provide a reasonable payment agreement to start getting your money back at a rate that the client can realistically afford.
Talking to your client is key in situations like this. You can work together to determine which rates and conditions will benefit you both without causing any harm to either party. When discussing payment options, clarify monetary values such as rates and percentages and how they are calculated if there becomes a missing payment again.
Put yourself in the customer’s shoes.
Customers who have financial troubles are not going to be in a good mood. Keep that in mind when you approach them because they will be stressed, and they will be just as upset with the situation as you are. It is essential to approach them with sympathy and understanding, listen to what they have to say, and process if there are any available options that you offer.
Cooperation and trust are two-way streets. Once the client feels that you trust them enough and are willing to cooperate to fulfill his (or her) payment obligations, it’s time to further strengthen the relationship by building on those feelings. A good relationship with a customer can quickly spread positive news about your business through word of mouth, allowing you free marketing as an advantage.
Debt collection is a challenging task, no matter how experienced you are already. Always keep in mind that you are dealing with people, too, and it is important to understand their situation and not get frustrated at them for being unable to pay back. Acknowledge the debtor’s issues and work out a plan that will help both of you.