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Account Collection Tips for Small Businesses

Erika R Bales


  • Entities collecting their own debts are exempt from the Fair Debt Collections Practices Act and state equivalents.
  • Small businesses should explore lien options for remedies outside of litigation, keeping in mind short lien-perfection timelines.
  • When pursuing debt collection, maintaining a respectful approach enhances the likelihood of success and protects the brand image.
  • Businesses should consider a cost-benefit analysis before deciding on aggressive actions.
Account Collection Tips for Small Businesses
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Running a business can be difficult enough without considering how to collect on past due accounts. Below are some tips and considerations when trying to decide whether to try to collect a debt yourself or hire a third party to help.

So long as people or entities that are owed the debt are collecting under their names alone, they are not considered “debt collectors” and are exempt from the Fair Debt Collections Practices Act (FDCPA), 15 U.S.C. § 1692a(6). Each individual state may also have its own statutory equivalent to the FDCPA. For example, North Carolina’s laws governing debt collection are found in North Carolina General Statutes Chapter 58, article 70. Section 58-70-15(c) excludes those collecting their own debts, attorneys collecting debts under most circumstances, and other service-related professionals.

First and foremost, small businesses need to know whether the goods or services they provided are entitled to remedies outside of litigation. Chapters 44 and 44A of the North Carolina General Statutes provide lien options and procedures for a variety of businesses, from contractors and other home repair and improvement providers, to county-provided ambulance services and different kinds of storage facilities, for example.

Small businesses must also be mindful that even if a lien on real property, personal property, or funds is possible, the timeline to perfect liens is often quite short—120 days following the last furnishing of goods or services provided at a work site for a mechanic or materialmen lien in North Carolina (N.C. Gen. Stat. § 44A-12(b)). Frequently, business owners just trying to keep up with work or trying to allow customers time to pay will miss the short lien-perfection timeline. While that does not preclude an action in small claims court or litigation under a claim for breach of contract or money owed, properly perfected statutory liens are excellent leverage to work out repayment.

If you are among the multitude of creditors with past due accounts, one of the most important decisions you will make as you move forward is to decide how to proceed to increase not just the likelihood of collection but the brand of your business overall. The last thing you need is to be overly aggressive in your attempts to collect and potentially alienate what is otherwise a good customer (or referral source) who not only will now not pay but will also say negative things online.

You want to try to maintain the dignity of each person from whom you attempt to collect a debt. There are several reasons why that will be your most successful path:

  • Most people want to pay their bills but are unable to for a wide variety of reasons. COVID-19, for example, has had a negative impact on the income of many households. These may be your neighbors, friends, or colleagues.
  • Most households have a limited pool of money from which to pay bills and expenses each month. If that pool of money does not cover all of the bills and expenses and the debtor has to choose which bills to pay, you want the debtor to choose you! An overwhelmed debtor will be disinclined to contact a creditor that attacks him or her. If you have been overtly hostile, snarky, or aggressive while attempting to collect the debt, that money will go elsewhere.
  • In the event the matter ends up in court, you want to look like the most reasonable and accommodating person in the room. Your only reason for being in court should be to protect your legal and financial interests, not to abuse or harass the debtor. Tone and tenor do matter.

Even if your relationship cannot be salvaged with all clients in the long term, being respectful and recognizing that sometimes life just gets in the way of a person’s best intentions will leave you feeling calm about your collection efforts and empathetic to the world around you.

Debt collection, like most claims, should be governed by a cost-benefit analysis—how much time and energy are you willing to expend to possibly collect nothing. That’s bleak. But a better approach is to start your cost-benefit analysis from a worst-case scenario and work backward to a resolution that, while not perfect, is acceptable to resolve the matter. This thought process will allow your business to weigh whether to offer discounts off the balance if paid in a lump sum or within a short timeline. Depending on state law and any contract you have with a debtor, you may be able to add late fees, interest, and credit card processing fees, and later waive them as part of negotiations. This allows debtors to resolve debts while your business still recoups the bulk of what was originally owed.

And, ultimately, there will need to be a decision as to how far your business is willing to go to collect an unpaid account—letters, phone calls, hiring a debt collection agency, lien, or litigation. Each of these options comes with its own costs and the possibility of the debtor successfully avoiding payment.

Last, but certainly not least, even the smallest business should have a functional contract—one that is not too long but manages to include salient points such as a clear description of what is being done, payment details, the addition of reasonable interest, whether you have the right to place a lien on the property, and the right to recoup attorney fees or costs if you have to enforce the contract. Many firms, such as my own, are able to assist businesses with these types of contracts for a flat fee.

In short, you provided goods or services to someone and may be entitled to every penny you claim. But at what cost?