HOW TO COLLECT THE MONEY PEOPLE OWE YOU

INTRODUCTION: The Difficulty of Collecting Debts For many people, the process of successfully collecting debts is fraught with conflict and uncertainty. You ask for the payment you have coming, the debtor gives you an excuse, and you don't know what to say next. Is the excuse really true? And even if it is, how do you convince the debtor to pay you? Many creditors give up on collecting debts before they should because they fear the debtor's ill will. Some stop trying because they assume the debtor is a won't-pay deadbeat who has no money, when this is not the case. Still others give up because they aren't aware of the legal remedies available to them, and don't know how to show the debtor they are really serious. On the other hand, some creditors become so emotionally involved and pursue their debt so energetically that they may end up owing the debtor money when the debtor sues for libel, slander, harassment, theft, assault, extortion, or other illegal collection practices. If you want to collect the money people owe you, you need to know the rules of the collection game; then you can be creative within these general guidelines. Indeed, in many instances, it is necessary to be resourceful; you will be competing with other creditors for payment from a debtor who doesn't have enough to pay everyone, or who uses a priority system to pay the more important debts first. In that case you have to find a way to make your claim come to the top of the pile—or perhaps look for non-monetary alternatives to getting paid. Of course, collecting what you are owed is only half the story. The other half involves taking preventive measures in advance to protect yourself from collection problems. Depending on circumstances, these measures can range from writing up effective loan agreements to making decisions about when to extend credit and to whom. A strong credit policy will help you decide under what circumstances you will extend credit—and how much you will risk. The Credit-Collections Connection Anytime you make an exchange with anyone and don't immediately get cash, you are extending credit. And that includes working for someone, accepting a check (in reality a promise to pay), billing someone for a product or service, or making a loan. If you think about it, you'll realize that every society operates on some form of credit. Even a simple society that uses barter instead of money incorporates a credit system. Say a person performs some activity for another, such as working in a field sharing food from a hunt. That activity establishes a debt whereby the other person is expected to perform some reciprocal action in return--perhaps doing work in the future or sharing later from his own supply of food. Thus, credit is, in a sense, the grease that keeps the wheels of society moving. Credit facilitates relationships: not every transaction can be immediately concluded with a payment in money, services, or products in return. But because the parties to a transaction agree or expect that reciprocal activity or payment will occur at or by a certain time, they can proceed with their current business, trusting that they will get paid. In any situation where you extend credit, you have to determine an acceptable risk level. You must also realize that you are making a trade-off between your investment of time and energy in the transaction and your expectation of getting paid. In effect, there is a trade-off between sales and credit; if enough people refuse to buy from you without credit, your conviction that you are "saving" money by refusing credit to your customers may come back to haunt you. Extending credit can indeed increase the likelihood of making a sale. But the very act of extending credit brings with it a measure of risk--however small--that payment will not be forthcoming. Accordingly, you must weigh the value of making a transaction that can increase your business, help a friend, or strengthen a relationship with the possibility that you will not receive the expected payment. Being too conservative in extending credit can lose you sales (or even damage some of your personal relationships, though personal borrowing is not the province of this book). On the other hand, being too liberal can create severe financial problems for you and possibly lead to a business or personal bankruptcy if you don’t get paid. You must strive for a balance that works for you and decreases your risks by maximizing the chances that you will effectively collect the money people owe you. How This Book Will Help You This book is designed to help you collect this money in two ways. • First, it will help you establish a good credit policy so you can make the best decision about whether to extend credit (in the form of money, work, or sales). • Second, it will help you determine exactly what to do when you have problems collecting after you have extended credit. HOW TO COLLECT THE MONEY PEOPLE OWE YOU takes into consideration that your strategies for extending credit and collecting will differ depending on the debtor's individual characteristics and personality. The book also deals with the legal niceties of what you can and cannot do when you try to collect--so you don't end up owing more than you're owed. While this book is designed especially for the small business person owed a small amount of money (up to about $5,000, which is the limit on small claims cases in many courts) individuals or business people who are owed much more should find the basic principles and strategies discussed in this book useful as well.