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Collecting on business debts

To keep your business running, you have to be able to collect the debts you are owed. Unfortunately, that isn't always the easiest of tasks -- even when the debts are owed by another business, like one of your suppliers or distributors.

If you're having trouble collecting a debt, here are some things you can do to try to get things moving in the right direction.

1. Look at your debtor's history.

Some debtors will do just about anything to keep from paying a debt. Others are simply struggling with a cash-flow problem and have too many debts coming due at the same time. Some may be experiencing financial problems of their own.

If your debtor has a history of paying their bills, you can often approach the situation in a straightforward way and try to work out a compromise that will allow everyone to walk away satisfied. Consider offering a reduced payment to a distributor that's having a difficult time financially or offer to break a payment into thirds so that you can make things easier for an over-burdened debtor.

If your debtor is simply avoiding you and has a history of being reticent to pay, you may have to take a more aggressive approach.

2. Send a demand letter.

If you've exhausted your ability to negotiate with your debtor directly, you need to send a demand letter. An attorney who handles business debt collection processes can help you craft an appropriate letter that will be taken seriously. Your letter needs to:

  • Inform the business that you are trying to collect on its debt.
  • Communicate the need for a prompt response.
  • Provide the business with an opportunity to resolve the debt through partial payments, a payment plan or partial debt forgiveness.

If you are still unable to obtain a response, you may have to proceed with a lawsuit to recover the debt.

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