Businesses are generally about the exchange of goods and services with money or as part of a barter transaction (i.e. trading services) which occurs rarely. Many businesses allow clients and customers to pay them with credit when goods and services are provided in advance.

Effectively, this means that businesses are lending credit, treating their business as if they were a bank, handing out loans, and therefore assuming the significant risks that come with it without taking the due diligence taken to mitigate those risks.

While operating in this fashion is nothing new, the issues occur when credit is loaned but their customers then fail to pay when accounts are due. Though there are several legal options for this scenario, these won’t guarantee that you get your money back, it’s important to be prepared, especially considering that the cash flow and the unpaid invoices are one of the largest problems affecting businesses worldwide.

Whether you are a small or a big business, you can use the following 5 effective debt recovery strategies shared by reputed debt collection experts at JMA Credit:

1. Offer alternate but flexible payment terms

It is often in your best interest to provide reasonable and achievable payment terms to debtors. But some people and companies impulsively take loans that they thought they could easily pay, but fail to. It is also important to communicate with them, especially in a time like this.

If the debtor keeps on missing payment schedules, immediately inform them of the disadvantages of accumulated debts and offer them an alternative or more flexible payment terms. This way, you get to have your money back rather than considering an account a loss.

2. Sympathize with your debtor

Debtors are usually stressed out of talking to collectors and their actual creditors, which is why it is important to work with them with sympathy. Reach out to them and listen to them why they are not being able to keep up with the payment.

Be open to hearing their monetary issues, which are usually the reasons why they cannot pay you. This way, the debtor or borrower will be more willing to open up and eventually cooperate with you when it comes to payments.

This strategy usually coincides with the first one. If you can sympathize with the borrower, you could get them to agree with payment alternatives. By acknowledging the issues of your borrower, you also get to formulate a payment term that is suitable for every specific borrower.

3. Ask for a great deal of collateral

Though this is usually at the beginning of the transaction, asking for valuable collateral might help you get more cooperative borrowers. If something is valuable, they would not risk it by not paying what they owe.

Apart from the possibility that valuable collaterals make cooperative debtors, you also have more chance of preventing a loss. If they deliberately stop paying their debt, you have at least the collateral that you can resell to make up for the debt of the borrower.

4. Analyze your accounts

You should consider every account–which ones are challenging and which ones are easy to handle. This way, you can strategize your collection technique even to your in-house or outsourced agents. You can assign difficult debtors to your most competitive agents and the easier ones to the average agents. This way you can almost guarantee a fixed percent turnover.

Checking each account could also help you with how you can handle each borrower differently. Some debtors are usually good payers on the first half of the term, and just randomly stop paying–these customers are usually the ones with a mix bag of monetary and personal issues that might need of alternative payment terms.

You also get to separate the group of borrowers that bring more problems to your company. These problem accounts might need a different kind of strategy.

5. Seek for outside help

There is nothing wrong with taking debt collection outside and use professional debt recovery companies. These companies usually have better ways of handling debt collection, and because they specialize in it, they often deliver.

These debt collection agencies have different conditions. Some of them offer a flat fee before collection and some collect fees after the collection. You just have to find a professional debt recovery company that would accommodate your needs, especially with the type of problems you are dealing with with your borrowers.

There are plenty of collection agencies out there but you have to be sure that the company you are partnering with aligns with your morals as a company.

More importantly, make sure that you are dealing with a legitimate debt collection company as the whole business revolves around money,

You should also go for a company that you can trust because somehow, you will be an open book to them, literally and figuratively. Partnering with third-party collection agencies would sometimes mean that you have to allow them access to your contracts, particularly the ones between you and your debtor. Your business revolves around these transactions, and when another company has to learn about them, it should be a company you can trust. This can also be reassured by a binding contract.

It may be difficult to collect from debtors, but following some of these tips might help your company prevent big losses.


Richard Scott is a passionate finance writer and business coach who spends his time helping small businesses to eliminate debt and implement cash flow positive collection processes.