Len Sklar has another great post up on cash management and collection issues: “Five Choices When You Can’t Collect The Debt” where he outlines the pros and cons of the following options when you “can’t collect.” He opens with a definition of what that means:

First, let’s clarify the phrase “can’t collect”.  That includes accounts that absolutely refuse to pay, those that are constantly stalling or making empty promises, accounts where the unpaid balance is very small, and other practical considerations such as lack of time to do collection work.  Regardless of the reason, here are the five key outside choices whenever it makes sense to stop working internally to collect an account.

The sequence shown below is in the order of the least to the most expensive.  It is also, not surprisingly, from the least likely to produce dollars for you to the most likely.

His five options:

  1. Write Off The Account And Forget It
  2. Pre-Collection Letter Service
  3. Small Claims Court
  4. Letter From an Attorney
  5. Collection Agency

His most important advice is when to start doing something, which is within three to four months of the debt going past due.

Another key consideration is WHEN you bring in the outside service, and the answer is: the sooner the better.  As I’ve observed in another blog, the average credit grantor waits from 9 to 10 months before using one of the five choices listed above.  That’s twice as long as good business practice requires.  You could, or should, know where you stand with the majority of delinquent accounts, in three or four months, which is the optimum time to use one of the five outside choices.