Debt Collection: What You Can and Can’t Do When Trying to Collect Debt

As a small business owner, whether you’re selling a product or service, you’re going to encounter those “bad customers” from time to time. The thing about “bad customers” is that they’re not necessarily always “bad” intentionally… life happens and certain circumstances happen that hurt finances, not leaving any wiggle room for any other financial obligations.

Although it can be quite frustrating to have customers that owe your business money, you can ‘t fly off the handle in collecting the debt you’re owed. You have to know what you can and can’t do and that there’s a right and wrong way to conduct that type of business.

As a business owner that’s owed a debt, that essentially means that your business is also incurring debt. Now, if you have a good understanding of cash flow, the debt you incur from “bad customers” might not affect you as badly as you might think it would. But by incurring the debt of a customer, you also become a debt collector.

As a debt collector, your debt collection tactics are limited by the Fair Debt Collection Practices Act, according to the Federal Trade Commission. Things like abusive practices or misleading representations can get you into a lot of trouble, so you have to walk that fine line. Take a look at what you can and can’t do when trying to collect a debt from customers.

What You Can Do

Sue the Customer For a Debt Payment

Suing the customer is typically a last resort type of measure to be taken when you’ve exhausted all attempts to collect the debt. Typically, the results of lawsuits in debt collection are bank levies and even garnishment of wages… There’s really no lesser evil of the two but sometimes, you have to do that, especially when their debts are putting your business in debt.

Sell the Debt

Sometimes when you can’t collect from a customer, you may have to sell the debt to a company that may have a better chance of collecting the debt. This is a way to rid your company of the debt, that way it’s their problem, not yours. The customer can certainly expect you to not contact them again but they can expect another company to be contacting them… they may like this other company contacting them either!

Use Text Messages to Collect

There’s just something about debt collecting phone calls that make people cringe and not answer the phone. With text messages, it’s not as threatening and more bearable for people to handle.

Just put yourself in the shoes of a customer who’s had “life happen” to them and can’t afford to pay your business back the money they owe. As a business owner, it’s frustrating but if you want to collect the debt, you’re not going to get anywhere by calling them 10 times a day.

By using text messages as a debt collection strategy, it makes your “past due” customers feel a little more comfortable in communicating with you, and you can communicate with the customer on a more personal level, negotiating and trying to work out terms that work best for you and the customer. 

Plus it’s the fastest and easiest way to get in contact with people, whether it’s the actual debtor or the references they listed.

Negotiate the Debt

Negotiating a debt is much better than not being able to collect on a debt at all… something is better than nothing. Maybe you have a customer that owes $300 in debt. You’re trying to convince them to pay $100 a month will help them pay it off in three months but they can’t afford it. 

Instead of trying to force them to pay $100 a month, negotiate with them and see if they can pay $50 a month. Sure it’ll take them longer to pay off but you’ll get that customer’s debt paid off.

What You Can’t Do

Harass the Customer

As much as you want to call these customers repeatedly, you just can’t… that’s harassment. And the thing about harassment is that it comes in many forms. Not only are repeated calls a form of harassment, but threatening phone calls and posting negative information about certain customers are forms of harassment as well. 

With the posting of negative information, that can get you into bigger trouble than you want… that customer could sue you for libel or slander… that’s a can of worms not worth opening.

Come to Your Customer’s Job

It’s absolutely illegal to go to a customer’s job to try and collect a debt from them. For one, that customer is going to feel attacked and may even call the police on you! But, one thing you can do is call that customer’s job and ask to speak to that particular employee (your customer). Now, in doing that, it’s important that you know you can let their employer know that you’re calling to collect a debt.

Arrest Your Customer

As much as you may want to, you can’t sue a customer over a debt they owe you. Where the loophole lies is if you sue that customer and they fail to show up for the legal court date, they can lose that case simply from not showing up and be forced to pay the debt, whether by wage garnishment or bank levy… If that customer doesn’t follow that court order, you then have the right to put out a warrant for their arrest.

Ultimately, you don’t want it to come down to that because they’re human just like you and life happens all the time. Just try to be understanding and work out some terms that will help them get out of debt and help pay off your business’ debts.

Dorian Koci

Dr. Dorian Koçi is a historian, Director of National Historical Museum of Albania and lecturer in Tirana State University, Faculty of History and Philology and New York University of Tirana.