7 Bad Debt Collection Practices and How to Avoid Them

Are you a creditor that is finding that you are consistently having problems with your bad debt collection process but can’t seem to figure out what the problem is?

If so, you are likely feeling quite stressed about the situation as debt collection likely functions as the main source of income for your business.

Debt collection can be a difficult task to undergo, as you are probably well aware. It is not always as straightforward as your client making payments as agreed upon.

Sometimes you will have to take certain actions in order for your money to be paid.

There are, however, some methods and behaviours that should be avoided as they are simply ineffective and potentially damaging.

This is why it can be beneficial for you to be aware of what not to do so that you can avoid these methods entirely.

In this article our team of debt collectors will discuss some harmful debt collection practices and what you can substitute them for to protect your business and collect your debts more effectively.

Bad Debt Collection - Harassment or Threats

The first harmful bad debt collection practice that can damage your business if undergone is harassment or threatening behaviours.

This bad debt collection practice is probably the most obviously not something that you want to do, but it is extremely damaging nature makes it worth a mention anyway!

Harassment occurs when you constantly contact your debtor or attempt to intimidate or abuse your debtor.

Threatening a debtor falls under harassment but occurs when you behave in a way that is meant to instil fear into or coerce a debtor so that they pay their debt.

These behaviours are not only ineffective but illegal as you are required to follow a set of rules and regulations when you are collecting a debt.

If you do any of the above, your debtor is permitted to report you and you will face fines and other such penalties if you are found to be guilty of the violations.

Bad Debt Collection - Deceptive Behaviours

Another bad debt collection practice in debt collection that is potentially harmful, and damaging is engaging in deceptive behaviours.

Debt collectors and creditors alike can occasionally get a bad rap for being deceptive or at least not being entirely clear about their intentions or terms.

Don’t be the creditor that pushes this reputation! When you initially enter into a business agreement with a debtor, inform them of your terms and how they will be required to pay.

This will avoid confusion and conflict in the future and will mean that your debtors will make payments according to the terms more often than not.

Furthermore, and more importantly, always inform your debt collector of your intentions, what you are asking them to do, and why.

Deceiving your debtor when trying to collect a debt is not permitted and can result in legal issues. Instead, try to always be upfront with a debtor and tell them what is happening and what you need from them!

Bad Debt Collection - Inappropriate Contact

Another bad debt collection practice in debt collection that is potentially harmful, and damaging is inappropriately contacting your debtors.

Contact is a vital element of collecting any debt.

Without effectively contacting your client you risk miscommunication and mistakes being made with transactions and payment terms.

Your client may have a busy schedule also that causes them to get caught up in their debt and forget about their debt entirely.

However, it is important that you ensure that you are contacting your client at appropriate times and proper frequencies.

You are only permitted to contact a client or account a certain number of times in a period of time, or you risk breaking debt collection guidelines.

To combat this, make sure that you are ready and prepared to speak with clients when you do call so that you can provide them with all of the information needed. 

Bad Debt Collection - Ignoring Payment Plans

Another bad debt collection practice in debt collection that is potentially harmful, and damaging is not taking into account the payment plan of the client.

This can result in issues in your debtor relationships and eventually lead to lost clients or violated agreements.

If you have spoken with a client and have come to an agreement that is different to your general payment plans with clients, keep a clear note of this on file so that you don’t forget about it.

Alternatively, if a payment plan doesn’t work for you, it may be better to simply lose the client than to have an agreement that is bad for your business.

If you have already come to an agreement with a client about a plan, it is important that you stick with it!

Refusing to Negotiate with the Debtor

Refusing to negotiate with a client is another bad debt collection practice that may not be in the best interest of your business.

Negotiation doesn’t sound like a great option for your business, but it can be just that.

You see, refusing to negotiate can result in clients declaring bankruptcy or insolvency, which can mean that you don’t receive much of a payment at all.

Instead, you should consider the negotiation but hold your needs as the priority. 

Failing to Follow Up with the Debtor

Not following up with clients about debts is another damaging bad debt collection practice that you may be using.

Following up with clients can ensure that they are across the debt and are making payments as agreed upon.

Failing to do so can lead to poor communication and clients having the wrong idea about the debt, or simply not paying it at all.

You should always make sure you call your clients a week or so after the agreement and whenever they miss payments!

Taking Legal Action Too Soon

Legal action should be a last resort with debt.

If your client consistently shows resistance to making any payments, you should consider taking legal action.

Otherwise, following some alternative routes should be your initial effort.

If consistent contact doesn’t work, you may wish to try alternative dispute resolution techniques or send a demand letter!

Consider Using a Debt Collection Agency

Do you feel that you have tried everything to collect a debt, but nothing seems to be working?

If so, it may be time for you to consider hiring a debt collector to fulfil this task for you!

Debt collectors are professionals in the industry and can offer your business much better debt recovery success rates.

Their access to tools and experience makes them much better at collecting debt than the average business owner!

If you have any specific tasks that you need to be done, such as skip tracing, they can also do that!

Consider debt collection and submit your debt online today!

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