Every business owner should know a few things about collections, particularly small business owners. You won’t do very much unpaid work before you don’t get paid yourself. From the perspective of an attorney who has helped clients with collections cases, here are the top things every business owner should think about in regards to collections:
1. Avoiding. How do you keep the list of receivables small? You need to have a superb product. Particularly in businesses where your clients rely on you for ongoing or repeat service, your best leverage is your product. If your clients need you in order to run their business, and you are better than your competitors, you have incredible leverage that can translate into avoiding collections. Even one-time customers pay more faithfully when the brilliance of your work wows them.
2. Systems. Establish a system for tracking and following receivables. Your collections efforts will seem five times easier if you do. Your clients will quickly realize that their account is not one they can let slide without you noticing. And the collections system shouldn’t begin once the account is past-due. Think about integrating payment earlier in the process.
3. Small claims. Get comfortable with using the court system to collect. If the relationship with the client can’t be mended, you need to decide whether to pursue legal action to collect. There are many factors which play into that decision. If you are comfortable with the small claims procedures (see http://www.utcourts.gov/howto/smallclaims/), you will make better collections decisions. Utah small claims procedures are straightforward and efficient.
4. Attorneys. I’ll face it: you don’t want to make an attorney part of your business model. That is why the prior steps are important. But there are some cases where it makes sense. Maybe the person who owes you money actually could pay but is refusing. Maybe this is a case where you need to set a precedent. But sometimes you have to just cut your losses. A good attorney can help advise you, providing a fresh perspective. A good attorney will also efficiently handle any work you give them, making any potential recovery more meaningful (to the bottom line).
Collections are a vital part of what you do in business. If you provide an excellent service you already do 75% of what it takes to stay on top of collections. Proper internal procedures and familiarity with small claims will take care of another 15% of your collections issues. In the remaining 10% of cases, you get to decide whether to involve an attorney. Don’t settle for a mediocre attorney; keep looking until you find someone who will work as hard on your cases as you would.
Jacob D. Briggs is a partner with the Ogden, Utah, based law firm of Bentley Briggs & Lynch PLLC, practicing in the areas of estate planning, real estate, and commercial litigation.