So, if you'd like to collect some of those bad debts you've got stashed away in a special file at the back of your file drawer, the first thing you should do is set up a regular routine for dealing with these customers and follow through on a collection plan. You should definitely investigate each new customer's credit rating before you advance him any credit. Tell him of your credit terms verbally, and print them on your bills, and also state the customers are liable for reasonable collection fees. If you make it a practice to bill your customer promptly, you'll find that your customers are more apt to pay promptly. On the other hand, if you run your business in a slipshod manner, you'll find your customers slipshod in their dealings with you.
Should a customer fall behind in his payments, you should start with a mild past-due letter to remind him, perhaps alluding that he may have forgotten the due date of his payment. With this letter, you should definitely include a duplicate invoice stamped, past due.
Then about two weeks later, send a second letter, this one more strongly worded than the first, but at the same time in a dignified and courteous tone. The important thing here is to leave him an opening to voice a legitimate complaint if he has one, but at the same time demanding some sort of communication from him about this matter.
Should you still not receive payment or any word from your debtor, send still another letter--your third--in which you apply a bit more pressure and appeal to his sense of fair play. Mention his credit rating and let him know that if he doesn't pay, you'll be forced to turn his account over to a collection agency--however, never make threats you don't intend to carry out.
Finally, two weeks after you've sent out your third letter and you still haven't heard from him, automatically turn his account over to a collection agency.
No one likes to be on a collection agency's list, and once your customer find out that you will indeed, turn their accounts over to an outside agency for collection, they'll quickly accept the fact that you're running a "tight ship", and not try to use you for a soft touch.
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