Delinquent accounts can quickly become a serious issue for companies. Debt recovery can be more challenging if it is left to a long time because it is acceptable to provide customers with a time to clear their dues but not extend it beyond the reasonable limit. So, how long can one wait before sending a debt to collections?
It is not possible to choose a single period for all situations. The best time will vary based on the nature of the debt, the terms of the debt, the history of communication and payment with the customer, and the debtor’s history of communication and payment.
Begin by Listing the Agreed Upon Payment Terms
You need to first confirm the payment terms you have agreed with your customer. If there is an invoice that’s due in 30 days, then you typically have to wait 30 days before you can assume that it’s past due.
If the date is past, politely remind the customer and allow them to explain the situation or pay the amount. An unpaid invoice may just be a matter of an administrative error, cash-flow problem or an email that was missed.
There’s a structured process that can help. Try to send a reminder shortly after the due date if the account is not paid and then more reminders if it’s not paid.
When to Contact Debt Collectors
When all reminders seem to have been ineffective and the customer is not truly trying to rectify the situation, there may be a need for professional help. If you’re dealing with debt collectors Sydney, your businesses can do what they can to collect overdue debts, while your employees can devote their time to the business.
You don’t have to wait until you have an old debt to come forward. Early intervention in many cases may be more effective as the debtor’s information is still current and the circumstances of the debt are more easily established. Another benefit of professional debt collection is that it can be especially helpful if a borrower doesn’t respond, moves to a different address, or is hard to find.
Age and Size of Debt
While the age of a debt is one of the factors to consider, it should not be the only one. A large commercial debt might warrant action sooner rather than later, when compared to a relatively small account. Also take into account the length of time debtor has been unresponsive. When multiple attempts have been made to reach them and still no response, trying to send the same reminders again might not yield a different response.
Having an in-house policy can ensure that businesses do not overlook over-due accounts. You might, for instance, escalate an account after a certain number of failed payment requests, but not leave it stuck in the position it is in for an indeterminate length of time.
Legal and Compliance Requirements are Mandatory
Debt collection must be done legally and professionally. Before escalating an account, make sure your records are accurate and that you can demonstrate that the debt is legitimate, due and payable. Maintain copies of invoices, contracts, correspondence, payment records and past collection efforts. Having good documentation will make it easier to recover and also ease any disagreement on what is owed. When there is a real conflict, limitation or possible court action, it is also advisable to seek professional legal advice.
Don’t Let the Debt Overwhelm You
The longer you let an unpaid debt go, the less benefit you’ll get from it. If all reminders are reasonable and the customer has not made any reasonable arrangements, then professional debt recovery could be a viable solution. The point is to be consistent, not to let an account get extremely overdue. Having a clear credit control process, accurate documentation and prompt escalation can enhance the likelihood of getting the money back and shorten the time that your business spends chasing unpaid debts.
