Recovering debt from a nonpaying client or vendor is a challenge. Even when the debtor pays in full, you must account for the expenses and difficulties that can come with collection. These costs can eat away at your total sum recovered.
Considering your debtor’s likelihood of repayment, you may wonder if payment is worth pursuing at all. Often, it is, but it’s important to know how you can collect it effectively.
Debt collection challenges
When collecting debt, you will need to consider your return on investment (ROI) before the process begins. Due to fees and collection difficulties, creditors usually end up receiving less than the original sum. Part of this stems from the nature of the debt collection industry. Any agency you work with will demand a sizable portion of the debt as payment for their services. You may pay up to 50% of the collected debt on these. You must also consider the likelihood that your debtor will refuse – or be unable – to pay you. If you cannot collect the debt, you may need to sell it to a debt buyer for less than its total value. And you will not receive payment on it if they make a collection.
Consider your options
Your debtor may owe you a large sum of money. In this case, your ROI could prove significant enough to move forward with the collection process. Yet, if you do not want to lose up to half of the missing money, you have the option of pursuing a lawsuit against your debtor. You may want to forego help from a collection agency, too, if you’re pursuing a small or medium-sized debt. Their fees will likely diminish your ROI to a point where recovery does not make sense. But convincing debtors yourself to pay up could prove difficult. Certain tactics can help you make your collection, though. By reaching out to your debtor with a polite yet straightforward phone call or letter, you may give them more incentive to pay in full. Or you could pursue the debt through small claims court if the amount is less than $5,000.
Collecting debt is an arduous undertaking. Whether you’re pursuing a small or large sum, you will likely benefit from help in attaining it. An attorney with collections experience can guide you through your options.