Don't wait too long to collect debt

score Question:
I have been operating with client charge accounts and lately they taking longer to pay and now more frequently I get checks returned for "NSF" [not sufficient funds]. Is this a trend, and how should I be handling it?

The check came back from the bank stamped NSF. It's probably not heard as often as "The check's in the mail," but it's still bad news. If you're holding your client's paper for 30 days, the interest on it is at least 1 percent of your profit -- 2 percent if held for 60 days. Now add bank charges of $29 or more for a bad check -- it really eats into your profits.

If it's necessary for you to let customers charge, why not authorize credit card charges? I'm sure it's not going to cost any more, and it'll cost a lot less when you factor in everything.

"Act immediately. Dont wait," professional debt collectors say. "Time is the ruination of all receivables. The dollar you're owed today will be worth, on the average, 58 cents six months from now, 27 cents a year from now."

Assuming that there's no dispute over product service, price or workmanship, it's up to you to go after the debt if you want your money.

If someone writes a bad check for work or product your company has provided, contact the clients by phone and say they have a specified time - 10 days in some states, 15 in others - to remit full payment. Send a letter stating the same. If no payment is received after three separate contacts, you have several options:

  • Enlist the aid of a third-party debt-collection service.
  • Contact the local prosector's office. In every state, people who write bad checks for goods or services received are subject to prosecution.
  • Contact the local Chamber of Commerce and secure the name of an attorney specializing in collections. An attorney can file suit in the appropriate court seeking a judgment against the debtor; which court depends on the amount owed.

A judgment is the green light to go after their assets, such as bank accounts or vehicles.

Collection agencies, which scooped up $32.2 billion worth of deliquent accounts nationwide in 1997, can be helpful if you're owed money. But they are as different as automobile dealers.

Ask for references, preferably in your related field. Check with the Chamber of Commerce, the Better Business Bureau oryour trade association. Thirty-three states require some form of licensing, so that's another source.

In many cases, simply having the collection agency send a letter procures the payment.

Bob Tomlinson of credit and Financial Associates in Covington, KY., says the agency collects 60 percent of accounts that way. It operates charges less tha $10 a letter and sends three before going to collections.

Of course avoiding such a situation is the best possible scenario: If you have any reason to suspect that the client may not pay, do not extend credit.

"The best way to collect on a bad debt is to not have to collect on it," Tomlinson says.

I still think the best way to handle charges for customers is through the use of credit cards, which verifies the customers' worthiness during checkout.

Bill Bryan is a counselor with the Service Corps of Retired Executives. SCORE offers counseling, workshops and seminars on small business operations. You can reach Bryan through SCORE, 515 N Court St. 815-962-0122, for information and appointments.

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