Collecting on past-due accounts is difficult enough without making preventable mistakes. Three things business owners and accounts receivable professionals should try to avoid include:
Waiting too long
In California, the statute of limitations on collecting debts is four years for breaches of written contracts. If you let that time pass without taking action, you will lose your legal standing. For lingering debt problems and elusive creditors, you may want to explore strategies for resetting the clock on the statute. The debtor will refresh the statute if he or she:
- Makes a payment
- Admits in writing that he or she owes the debt
For a business owner or professional focused on thriving in their industry, collecting a debt is an easy item to place on the back burner. But being too patient can prove costly and send the wrong message to other potential debtors.
Crossing legal boundaries
Debt collection is a heavily regulated industry. Navigating the numerous laws that protect debtors creates a virtual minefield for a business owner who doesn’t have the time to learn all the nuances of legal and effective debt collection. The Fair Debt Collection Practices Act, and California’s similar Rosenthal Act, prohibits, among many things:
- Calling too early or too late (before 8 am or after 9 pm)
- Contacting a third party, such as a friend or family member about the debt
- Contacting the debtor directly instead of his or her attorney (if the debtor has acquired legal counsel)
Running afoul of the law exposes you to lawsuits, fines and other costly liabilities. Such an action could also derail your collection efforts
Selling too soon
You may be tempted to wash your hands of a debt altogether and sell it to a third-party collection agency. This may be especially tempting if you have had no luck collecting your debt and seem to have exhausted all of your options. There is risk in selling too soon, however, as you will likely only receive pennies on the dollar and there may be viable collections strategies you have not yet explored.
Debt collection is a complex process that must be handled with care. By avoiding missteps and following proven legal processes, you can give yourself the best possible chance of obtaining what is yours.