Debt Collection Techniques With unclear terms and no contact, it will be

much more difficult to enact debt recovery

8 successful debt collection techniques you practices with success.
can employ to make the most out of your
aging accounts. Provides specific details on:
What you’re being paid for
Debt collection is arguably one of the least How you’ll be paid
fun parts of running a small business. When payment is due
What’s considered late
While most people would rather avoid it at Any consequences for late payment
all costs, it will actually cost you to avoid it.
Tip 3: Make Paying Easy
8 successful debt collection techniques Handling payments online is one of the
easiest ways to stay on top of bills these
Tip 1: Maintain Consistent Contact days.
When you lose contact with a customer who
has an unpaid invoice with you, you’re With payment processing services like
decreasing your chances of getting the Paypal, Stripe, and Square there’s no
invoice paid. shortage of ways to receive payments on the
web.
Keeping consistent and strategic contact
with your customer increases those chances. Tip 4: Have Empathy, But Keep it
Professional
Knowing what form of communication your You never know what someone’s going
customers respond to the best and what through that caused them to be in
time they’re able to take your call is an outstanding debt.
important part of the debt collection
process. Usually, this looks like a drop-off from their
normal payment activity.
One of the best debt collection strategies is
the omnichannel approach. Other times you’re dealing with someone
- This approach essentially uses all who is actively trying to avoid paying
known methods to contact your - It's important not to make any
customer at the right times assumptions about the customer’s
situation.
An example of this is sending a reminder
email with a link to an online payment If they get abrasive during your
portal. conversation, you still have to keep a level
head.
Tip 2: Make Payment Terms Clear
The payment terms you lay out at the start Professionalism is part of your reputation.
of working with a new client sets the tone
for successful debt collection efforts. Don’t take it personally
Keep your cool
Don’t let consumers waste your time–be Tip 7: Check Customer Credit
direct Instead of making collection attempts in
Suggest a call back later vain, you could run a credit check before
choosing to work with them.
Tip 5: Keep Good Records
When you’re pursuing payment on a This can tip you off before you sign a
delinquent account, it’s important to record contract and make your life a lot easier.
each collection attempt.
Tip 8: Know When It’s Time to Call in the
Friendly payment reminders Professionals
- Should be a quick, light reminder As a small business owner, you wear plenty
that a payment is due. of hats. But some things are better left to the
Past due payment notice professionals.
- If payment is still delayed after that
reminder. Include the amount they Sometimes, a commercial debt collection
still owe and politely request agency is the best way to recover payment
payment at the earliest possible date. from a delinquent customer.
Final notice
- Your customer is no longer within Before choosing a debt collection agency to
the terms of payment you both work with, it’s best to look them up through
agreed on. This will be more firm the Better Business Bureau (BBB)
than the previous ones.
Direct customer contact
- A phone call or visiting your client in Role of Credit Collectors in Business
person may help resolve the issue.
Letter of demand Debt collector responsibilities include:
- This is not to be taken lightly. This - keeping track of assigned accounts to
one is very direct and firm in its identify outstanding debts
request for immediate payment. - planning course of action to recover
outstanding payments
Tip 6: Centralize Your Debt Collection - locating and contacting debtors to inquire
Without a central system to house debt of their payment status
recovery information, your debt collection - negotiate payoff deadlines/ payment plans
efforts might feel disorganized. - handle questions or complaints
- investigate & resolve discrepancies
Centralizing your debt collection - create trust relationships with debtors
information allows others in your company when possible to avoid future issues
to view the collection details for each - update account status and database
consumer debt. regularly
- alert superiors of debtors unwilling, or
But once it’s in place you can make a unable to pay when necessary
difference in the number of debtors and - comply with requirements when legal
decrease the amount of bad debt your action is unavoidable
business takes on.
A debt collector will have to be polite and Another consideration is the impact of using
sensitive towards people while also a collection agency on customer
remaining committed to their purpose and relationships.
persistent.
Collection agencies can use aggressive or
Credit collection is the process of collecting confrontational tactics to recover debts,
overdue or outstanding payments from which can damage the company's reputation
customers who have not paid their bills on and reduce customer loyalty. However,
time. some collection agencies specialize in using
more gentle tactics that prioritize
This process is typically initiated when a maintaining customer relationships.
customer has failed to make a payment by
the due date or has outstanding balances on Legal action and court proceedings, if
their account. applicable:
This is where things will get really messy. If
Should a company use a collection agency to all attempts to collect the debt fail, the
collect debts? lender or collection agency may decide to
take legal action.
Collection agencies are specialized firms
that are trained to pursue delinquent This is typically the last resort, but it can
accounts and have the resources and happen if the debt remains unpaid for an
expertise to do so effectively. extended period
However, whether or not a company should
use a collection agency to collect debts Asset seizure is a form of confiscation of
depends on a variety of factors assets by the authorities. Garnishment
means any legal or equitable procedure
Collection agency typically charge a through which the earnings of any
commission of fee based on the amount of individual are required to be withheld for
debt recovered, which can reduce the overall payment of any debt.
amount recovered.
Garnishment as a creditor's remedy
Another consideration is the impact of using sometimes results in loss of employment by
a collection agency on customer the debtor, resulting in the disruption of
relationships. employment, production, and consumption
which constitutes a substantial burden on
Collection agencies can use aggressive or local commerce.
confrontational tactics to recover debts,
which can damage the company's reputation
and reduce customer loyalty. However, Consumer Rights in Debt Collection
some collection agencies specialize in using As a borrower facing debt collection in the
more gentle tactics that prioritize Philippines, it's crucial to understand your
maintaining customer relationships. rights during the process. Philippine law
provides certain protections for borrowers
to ensure fair treatment and prevent
harassment. After all, having unpaid loans harassment, coercion, or intimidation
doesn’t mean you no longer have rights! tactics.

Under Philippine law, you have specific ✘ Misrepresent themselves or make false
rights when dealing with debt collection. statements about the debt. They cannot
These rights include: claim to be the police or mislead you about
the legal consequences of non-payment.
● The right to fair treatment:
Debt collectors must treat borrowers with ✘ Publicly shame or disclose details of the
fairness, respect, and dignity throughout the debt to third parties, such as friends, family,
debt collection process. or employers, except as allowed by law or
They definitely cannot engage in abusive, with your explicit permission.
threatening, or harassing behavior
Understanding these rights and limitations
● The right to privacy: is crucial for borrowers dealing with debt
You have the right to privacy. Debt collectors.
collectors should not disclose details of the
debt or discuss it with third parties. If you believe that a debt collector has
This means they aren’t supposed to talk violated your rights or engaged in unfair
about your loan with friends, employers, or practices, you have the right to file a
even your family! complaint with the appropriate regulatory
bodies or seek legal assistance to protect
● The right to dispute: your interests.
If you think there is an error in the debt
amount or other aspects of the debt, you
have the right to dispute it. Debt collectors Collection Policies and Procedures
must investigate and provide a response to
the dispute within a reasonable timeframe. ● Credit Management Policy

● The right to stop contact: Credit management policies are rules and
You have the right to request that debt guidelines established by top management
collectors cease communication with you. that govern the company's credit
This can be done by submitting a written department and its performance in the
request to the debt collector. extension of credit privileges.
However, it's important to note that this
does not absolve you of your responsibility Credit procedures are employed to achieve
to repay your cash loan. the goals of credit management policies.

Debt collectors have boundaries and ● Collection Policy

limitations defined by Philippine law. Here
are three things debt collectors absolutely A credit collections policy is a document
cannot do: that includes clear, written guidelines that
✘ Use abusive, threatening, or offensive set the terms and conditions for supplying
language when communicating with you. goods on credit, customer qualification
They are prohibited from engaging in criteria, procedure for making collections,
and steps to be taken in case of customer - Write off-remaining balance
delinquency. - Conduct post-mortem

● Collection Procedure ● Debt Collection Methods and

Techniques
Detailed statement of steps to be taken - Friendly payment reminder
regarding when and how the past-due - Overdue payment reminder
amounts are to be collected. - Final notice
- Direct contact
Collection procedure is laid down usually in - Formal letter of demand
the credit policy.
● Several Ways to Improve AR
● Objective of Collection Policies and Collections
Procedures Invoice Quickly. ...
Break Up Your Invoices. ...
The objective of creating collection policies Send Clear, Easy-to-Understand Invoices. ...
and procedures is to encourage customers to Simplify the Payment Process. ...
pay on time and collect past due accounts Establish Good Relationships with Your
within the 30 to 90 day time frame the Clients. ...
business typically sets before considering Send Payment Reminders. ...
past due accounts not collectible, writing Follow up with Delinquent Accounts. ...
them off and turning them over to a Work with Clients Who Are Struggling to
collections agency. Pay.

→ Some Policies of the Business Firm ● Principles of Sound Credit

- Collection costs must be kept within Management
reasonable limits
- Good will of customers must be cultivated ESTIMATION
and maintained - All available sources of credit
- Risks must be reduced information must be tapped and
utilized
→ Basic Responsibilities of a Collector Sources of credit info
- Contact delinquent customers a) interview with the applicant
- Check reasons for delay in payment b) credit rating agencies
- Secure payment commitment c) lender’s own records (credit file)
- Follow-up payment commitment d) financial statements

→ Sample Collection Procedures ENFORCEMENT

- Assign overdue invoices - The task of every collection
- Verify allowed deductions department is to get the money due
- Issue dunning letters the company.
- Initiate direct contact - Collection records must be kept and
- Settle payment arrangement maintained and should indicate the
- Refer to collection agency following:
- Sue the customer
a) when notices were sent 3. Decision-Making Stage
b) dates when calls were made by collectors Depending on the analysis, the analyst
c) payments made identifies and measures the credit risk
d) balance due associated with a loan application and
e) action taken, if any determine whether the level of risk inherent
is acceptable or not
EVALUATION
- Sound credit management principle ● TYPES OF DEBTORS
dictates that results must be
evaluated against company policies 1. Cooperative debtor – become
and procedures. delinquent not necessarily of their
- Records must be periodically own making.
reviewed and kept up to date. It is brought about by circumstances
beyond their control.
● CREDIT ANALYSIS
The process of evaluating an applicant’s 2. Chronic complainer – with baseless
loan request or a corporation’s debt issue in complaints
order to determine the likelihood that the
borrower will live up to his/her obligation. 3. Politician-type – do not deny the
existence of obligation but has a
The method by which one calculates the number of reasons
credit worthiness of an individual.
4. Uncooperative and indifferent
Use to determine the risk associated with debtor – does not pay on time
granting credit. “makunat”

● 3 STEPS IN CREDIT ANALYSIS 5. Elusive type – hard for collector to

find them in their offices/homes
1. Information Collection Stage
- collecting info about the applicant
- collecting info about the business for ● Day Sales Outstanding (DSO)
which the loan is required
- collection info about the recovery process DSO = AR/Total Credit Sales X Number of
- collecting info about the security Days
- collecting additional info, if necessary

2. Information Analysis Stage

- analyzing the accuracy of info
- analyzing the financial ability of the
applicant
- analyzing the effectiveness of the project
- analyzing the possibility of loan repayment