It happens too often. You provide goods or services in good faith, and for whatever reason the bill does not get paid. Sometimes clients that are either late on payments or not paying at all were previously good clients that have fallen on hard times. Other times you may encounter clients that just don''t seem to take their bill seriously. This can be especially frustrating for small businesses that are struggling themselves and cannot afford a lot of legal fees that are involved with debt recovery.

Your browser may not support display of this image. Depending on the situation, and the relationship you have historically with a client, involving the court system might not be necessary. If an otherwise good client falls on hard times, you still want your money but you want to be careful not to come off as harassing. Chances are things will get better, and you don''t want to alienate a good customer or encourage a disgruntled client to badmouth your business.

Confronting these types of situations early and working out a payment plan including interest with a customer is often the best way to recover your money. It may seem like it is taking a while, but if a client makes a decided effort to avoid payment, the process can be long and unpleasant for everyone. Most people enter into a debt with the intention of paying it off. As long as communication about the debt and the payment can be kept on amicable terms it is usually better for everyone concerned to keep things in-house. 

Just because difficult times happen and often pass doesn''t mean people always rush to pay off all their creditors the minute the sun rises on their finances once more. While professional debt collectors take a portion of the debt that they collect, meaning less money recovered for you, it is sometimes the only way to get a customer to take their debt seriously. Sometimes, seeing that a bill comes from a collection agency will cause a client or a customer to panic about their credit rating and will expedite payment.

While well-meaning clients will often pay as soon as they can, spending too much time and energy in debt negotiations with a client can eventually take too much time and attention away from your business. Professional collection agencies are governed by the Fair Debt Collection Practices Act, and they will need to be careful to follow these guidelines, otherwise the debtor may be the one who gets a settlement. However, since collection is their business they are familiar with these rules and can assure they are followed in order to collect as much of a debt as possible.

There are times when official debt collectors are still not successful. It is during times like these when businesses may want to consider going to court. Depending on the extent of the debt, this type of legal action may result in a client’s wages or bank accounts being levied which puts your debt near the top of their priority list. Court costs and bank fees can make this method of debt collection more expensive for both you and the client, so you will likely want to hold off on using this method if you possibly can.

In some instances, when a client or customer is simply living beyond their means and could afford to pay their debt to you if they scaled back their lifestyle, it may be worth it to explore the option of involuntary bankruptcy. Here, a debtor is forced to liquidate his assets in order to pay at least a portion of his debts. Of course, if the debtor does not have assets to liquidate trying to use this method will be a moot point.

The most obvious way to avoid unpaid debt is to avoid extending credit as much as possible. Of course, if you are providing more complex goods and services that isn''t always possible. Asking for larger down payments for those who do not have a good credit history or refusing credit to those who will not be able to afford your goods and services may be a way of doing everyone concerned a favor.

Layaway programs are also helpful ways to get people to follow through with paying their debts, and those who are going through difficult financial times will appreciate your effort to work with them to help them get what they want or need while you protect your own business at the same time.

Gretchen Baumgartner is a freelance writer with over 10 years experience in the financial services industry. She enjoys writing about business finance and lives in Colorado with her husband and 2 dogs.

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