There’s no doubt about it – if you run or own a business (and you probably do both of these things simultaneously), you will be selling something. That means people will owe you money. They might owe it for a few seconds while they make their purchases; they might owe it for a few weeks if you give them some credit terms; or, and this is the situation you’ll want to avoid, they might own it for many months and seem not to want to pay you at all.
The problem is that no matter what size business you are, but especially if you’re a small one, this long payment period can cause many problems. After all, if people don’t pay you, you can’t pay others, which can lead to reduced services and goods for your customers, which leads to less profit, and so the cycle continues. In the end, that could spell the end of your business altogether.
This is why it’s important to know what to do if you’re owed money in business so that if this situation ever arises, you have a plan to deal with it as quickly as possible. With that in mind, read on to learn more about what you should do.
Assess The Situation
You might be so worried that you’re owed money (especially if it’s a large sum) that you dive right into recovering the debt. That’s understandable, but it’s not the best course of action; it’s actually best to take a little time (not too much) to assess the situation first. In that way, you’ll have all the information and evidence you need for whatever steps you need to take later on.
Start by looking at the debt timeline; when was the money due, and how late is the payment? Perhaps you’re jumping the gun a little about chasing the money or being concerned – if it’s just one or two days late, it could still come, and because business is a delicate balancing act, you might want to hold off on contacting the debtor. If they’re about to pay and you start chasing, it could be a problem and cause your relationship to crumble. If you wait until you’re sure there’s no payment forthcoming, this could save you a lot of embarrassment and hassle.
You should also take the time to check all the documents relating to the sale. Did you note the payment terms on the invoice? If you did, were they correct? Have you gotten the date right yourself? Just ensure you’ve checked everything thoroughly before contacting the client, as the more informed you are, the easier it will be to let them know what you want with confidence – and that’s important.
Open Communication
Once you’ve entirely assessed the situation, the next step is to start some open communication with whoever owes you money. Remember that your goal shouldn’t be to accuse anyone of anything or even start a confrontation (as tempting as it might be). Instead, you want to resolve the issue and get the money.
Start by sending a polite reminder to the debtor to let them know about the outstanding payment. You’ll know what it’s like when you’re busy; it’s easy for things to slip your mind, and that could be all there is. A polite reminder won’t do any harm and could be the only thing you’ll need to do.
If the debtor gets back to you and lets you know why they’re not paying, make sure you listen to them. You can clarify any misunderstandings or other issues yourself in most cases, and then they’ll pay. Or if the problem is something like cash flow at their end, you might be able to devise a payment plan that will help everyone. You won’t know unless you listen, however.
If the debtor doesn’t respond at all, that doesn’t mean you should give up. Send follow-up messages and be patient to ensure you’re leaving enough time (remember that salvaging relationships should always be at the forefront of your mind when trying to get someone to pay you). If you send consistent communications, it will show that you’re not just going to forget about the money owed and that you’re willing to work together to resolve it. If you can’t seem to find them at all or they’ve disappeared, don’t worry; you can use a specialist service to trace people to take that worry away from you and give you the best chance of recovering the money.
Consider Negotiation
Negotiation is something all business owners should be able to do as a matter of course, and when you’re owed money, that can be the perfect time to do it. In fact, this technique can be beneficial when it comes to showing goodwill, and if the debtor is in financial difficulties, it might even persuade them to settle your debt before another one, which is never a bad thing from your point of view.
Rather than immediately resorting to legal action, think about what you could suggest to the person or business who owes you money and propose alternative arrangements that both parties can be happy with. A good idea might be to suggest a payment plan, allowing the debtor to pay in installments over a longer time – the debt will become more manageable for them and means you’re more likely to get the full amount eventually. Or you could suggest a partial settlement, which means you’ll get less money, but you’ll also be able to avoid any legal situations, which aren’t ideal for businesses to have to contend with.
When it comes to negotiation, the key is being flexible and willing to find a compromise that both sides are happy with (or at least can live with).
Take The Legal Route
Although the main goal when you’re trying to recover a debt is to resolve the issue amicably, sometimes there’s nothing left for you to do – assuming you don’t want to write the debt off – but to take the legal route. This should be a last resort, but sometimes, it’s the right thing to do. However, you do need to be cautious when you do this, as there are many things you’ll need to get ready and be prepared for if you want to be successful.
One thing to consider is who you will ask for help from. If it’s just a tiny sum, you can probably fill in the paperwork and file it all without any assistance. Still, for more enormous debts, you might need to hire a specialist lawyer and even attend a court hearing, so it’s a good idea to look into all the details before making any decision.
Once you’ve obtained a judgment about the debt (meaning the court ruled in your favor), this is only the first step – you still have work to do, including enforcing the judgment. This can be hard because most debtors will pay before it gets to this stage if they have the money, and a judgment doesn’t change anyone’s cash flow situation. However, there are some additional methods that a judgment can help you with, including wage garnishment, freezing bank accounts and seizing funds, seizing assets, and even judgment liens (which means the debtor can’t sell or refinance their property without spending some of the equity to pay the debt).
Before you take things to the next level and start legal proceedings, it’s a good idea to weigh up the pros and cons. – it will cost a lot, perhaps more than the debt itself. Some people will still want to proceed on principle, but you’ll have to consider whether that’s something your business can handle.
Learn Lessons
It might be that you got the money quickly once you started communicating with the debtor. It might be you got it, but it took some time. Perhaps you never received the money at all, even if you went to court – maybe you decided that court was too expensive, so you wrote the money off as a bad debt.
There are a lot of ups and downs that can occur when you’re owed money in the company, and you can’t always know what’s going to happen. What you can do, however, is make sure you learn lessons from what took place so that, as far as possible, it doesn’t happen again or, at the very least, if it does happen, you’ll know what to do right away and potentially start the ball rolling more quickly on debt collection.
In this way, you can turn what might have been a negative situation into one that helps you and your business massively in the future.
