One of the questions I often get asked is “when should I put this debt in the hands of a collector?” This is because there is always conflict between the fear of upsetting the client and having them either go somewhere else or bad mouthing you, and a desire to get paid.
There is nothing wrong with this conflict but I believe there are a number of points to consider before the question can be answered.
Do you know honestly know why you haven’t been paid?
This question is asked because there are only four reasons why debtors don’t pay their accounts; administrative error (I forgot to pay, or you didn’t put enough detail on your invoice), dispute, cash flow difficulties, or lack of ethics. Unethical debtors are whom I describe as plonkers.
If there is an administrative error then you can ask when you should expect payment. Diarise for receipt of the payment though, as you need to contact your debtor the day after payment is expected, if it hasn’t been received.
In the case of a dispute, resolve the dispute. Yes your debtor should have contacted you when they first received the invoice, but in practice New Zealander’s are not traditionally complainers and they would rather you make the first contact.
If it is a cash flow difficulty, remember that unless your permission has been asked first, you should dictate the payment terms to suit you. Get agreed terms in writing (a quick email will do) so that your debtor is left in no doubt as to your expectations.
Therefore the services of a debt collector are only required to deal with plonkers. In all other instances you should be able to come to some agreement with your debtor regarding payment.
Why do you want to use a debt collector?
You should never use a debt collector for revenge or out of desperation. A debt collector should only be used to supplement your processes. In other words, once you have found out that your debtor is a plonker and they are not communicating with you.
How long has it been since you last communicated with your debtor?
If a debtor really is a plonker then there is a good chance that, instead of fronting up and being honest with a creditor they will just put their head in the sand and try to avoid their responsibilities.
This leads to a sense of frustration, how can you negotiate with a debtor who won’t even talk to you? There are two reasons why debtors won’t talk to you; either they are under extreme cash flow pressure or they have no intention of paying and are simply unethical.
In both instances your chances of recovery are going to be dictated by how quickly you take action. Yes it’s the old ‘the earliest bird gets the worm’ syndrome.
If it’s a cash flow issue, it’s about ensuring payment to you takes priority over paying anyone else. If the debtor has no intention of paying, the earlier pressure is brought to bear the better.
So the answer to question “when should I put this debt in the hands of a collector?” is quite simple – as soon you are unable to communicate with your debtor in a meaningful manner.
