If a customer owes your local business money, it's hard not to feel angry, like you want to do anything possible to get your money back. But the days of going all out to collect on a debt over.
The Fair Debt Collection Practices Act, designed to protect consumers from harassment or intimidation, sets firm limits on what you can do to collect a debt from a consumer. The federal debt collections law even prohibits practices that were once standard, and that you might not consider harassment at all.
Besides, as a local business, you have an even more powerful reason to be especially careful about legal debt collection issues. You have something much more valuable at stake than a lawsuit: your business's reputation in the community.
Legal Debt Collection Best Practices
There are plenty of articles on the web that lay out in plain English what the Fair Debt Collections Practices Act says you can and cannot do. For instance, this article: [link to small business debt collection law cheat sheet] Just to give you some idea of the law's requirements, here are some of the biggest:
1. No telling any third party about the debt (except collection bureaus, collection agencies, or the debtor's attorney).
2. No calling on the telephone 9 pm - 8 am, or calling repeatedly in a way that is annoying.
3. No postcards or envelopes that mention the debt.
4. No threats to take actions you cannot or will not really take, such as seizing property, in the case of an unsecured debt.
5. No misrepresenting yourself (e.g., "Hi! This is the Publisher's Clearinghouse Sweepstakes. May I speak to John?").
6. No paying down the debt with payments the customer has directed be applied to other debts
Tips and Tricks for Legal Debt Collections
With all these limits on what you can do to collect a debt, what can you do legally?
1. Speak with the debtor personally on the telephone; most likely he or she wants to pay but is in over his or her head. Begin by asking what circumstance has kept him or her from paying. Offer to set up a repayment plan.
2. You should both send letters and make telephone calls. Many people will only respond to one or the other.
3. Document every part of the collections process. Take notes for each call and keep a copy of each letter. If the debt does ever go to court, you will have proof you acted legally.
4. Look into reporting the debt to credit bureaus. If you can, and are willing to do it, you can tell the debtor that not paying will impact his credit rating.
5. Best tip of all: hand over the job to a dedicated collection agency. Small business debt collection services start at as little as $20 per debt.
The fight to get paid is a fight no business should have to involve itself in. Unfortunately, debt collections are a part of business. Just make sure that for your local business debt collection law is followed to the letter, or legal proceedings may become part of your business, too.
About the author:
Joel Walsh has written more tips on debt collection law: http://www.debt-collection-laws.com/?debt collection law [Web publication requirement: create live link for the URL/web address using "debt collection law" as visible link text/anchor text; EXCEPT if redistributing (article bank, aggregator, or clearinghouse), anchor text optional.]
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