Top Debt Collection Tips for Small Businesses
Debt collection can be more difficult for small businesses compared to bigger companies. They have more limited resources to carry it out, which can lead to gaps in cash flow that hamper their finances. This is one reason why many small businesses experience a lack of funding. A cash flow gap can be caused by debt and late payments from clients, preventing small businesses from purchasing supplies, creating products, paying bills, and operating efficiently. To prove the impact of this problem, a study by the US Bank revealed that 82% of all failed businesses are due to poor cash flow management. To avoid cash flow problems due to debt and late payments, small businesses can follow these top debt collection tips:
Streamline your payment process
Sometimes, debt and late payments are not a result of customers’ laziness, but rather the small businesses’ payment process. After all, a confusing procedure can prevent customers from pushing through with their payments. That's why small businesses must review their payment process to ensure it’s streamlined and easy to follow. For instance, invoices should show what payment methods are accepted (like cash, credit card, and PayPal), they should include the contact numbers of people they should approach in case of payment problems, and confirm customers’ payments afterward. Some people may think that their payments pushed through when, in reality, the businesses never received it. Although this is a simple solution, it can help small businesses prevent debt and late payments.
Hire an accountant
Dealing with small businesses’ finances alone is tricky, especially if debt collection is thrown into the mix. This is why hiring an accountant is essential, as these professionals can handle financial tasks, freeing other employees to focus on their own work. When you hire an accountant, ensure they have accounting certifications—like Certified Public Accountant (CPA) or Certified Management Accountant (CMA). Employers usually look for these certifications to prove a person is qualified to make invoices, record payments, ensure tax compliance, and align correspondence between small businesses and their clients. This also makes them financial experts in critical accounting, financial planning, and analysis, which can improve debt collection methods. Small businesses can hire accountants via job postings on sites like LinkedIn or through an accounting firm.
Get assistance from a debt collection agency
Apart from an accountant, small businesses can deal with debt collection with the help of a debt collection agency. Compared to hiring a long-term accountant, they can hire these agencies’ services for a certain period. Their services involve collecting debt on behalf of small businesses and negotiating settlements with clients if needed. A debt collection agency can save businesses time and money by allowing them to utilize their energy and resources toward other tasks and enable business owners to preserve their mental well-being, as debt collection can be stressful. Partnering with a reliable agency with reliable services like ours here at Fair Capital can also be cost-efficient since it doesn’t require upfront costs. It only charges commissions based on the amounts that were successfully collected. By acquiring a debt collection agency’s services, small businesses have an easier time with this task.
Utilize predictive analytics for payments
Technology has come a long way in helping small businesses with operations, including those that involve finances. Predictive analytics is one relevant emerging technology that can help predict which clients will be most inclined to have late payments or past-due invoices by analyzing their past payment behaviors. With predictive analytics, small businesses can better determine which clients to invest more time and energy in to collect debts. At the same time, it allows small businesses to automate their debt collection procedures, saving time and resources while ensuring they get paid. The accounting automation software YayPay is one example of a program that utilizes predictive analytics, allowing for more efficient debt collection. Debt collection can be challenging for small businesses. Hopefully, these tips will help streamline the process and improve their collection methods.