Let’s talk about collecting on old debt. Debt collection is a topic we discuss regularly here on the Clients ARM blog because of its importance. When your business doesn’t have the necessary funds coming into the business, it affects your bottom line. Outstanding accounts can also affect your ability to get a business loan. Should you collect on old debt? Before you do, answer the following questions.
How Old Is the Debt?
This question is important. When was the last time a payment was made on the account? When it comes to debt collection, a statute of limitation exists. A statute of limitations is the length of time you have to legally attempt to collect on a debt. After that time has elapsed, you can no longer collect on it unless you’re able to reset the clock on the debt. Resetting the statute of limitations isn’t always easy or doable.
The length of time you have to legally collect on a debt depends on the state where you conduct business and the type of debt.
Do You Have Documentation on the Debt?
Debtors have the legal right to ask businesses who say they owe a debt to validate it. This means that when a debtor asks for verification or documentation that the debt belongs to them, you must be able to provide it. Although the Fair Debt Collection Practices Act doesn’t give specific examples of what counts as debt verification, you should do what you can to send more than just a copy of an unpaid invoice. For instance, sending a copy of a signed contract along with a history of payments and the past due invoice could be considered better verification of the debt if the matter were to end up in court.
Does the Debt Belong to a Business?
If you provided services to a business, then you should check the debt and the contract to determine if the debt belongs to the business or if you have a personal guaranty. When a business is dissolved, the owner of the business may not have a legal liability to pay for debts incurred by the business. While you can certainly try to collect on an old debt that belongs to a business client, you could have some trouble collecting on it.
What Is the Amount of the Debt?
Another consideration on collecting on older debt is the amount of the debt. Is it really worth your time? Even if you outsource your collections, you need to consider if it is worth the expense. If you’ve considered small claims court, you must think about whether the expense is justified and whether you’ll get any money or if you’d just receive a judgment.
Do You Have the Time?
Do you honestly have the time to work on old debts or would your time be better spent working with your current clients and growing your business? If you dread collections or if you just don’t have the time to do them, contact Clients ARM for a free consultation. We can help you decide which old debts are worth the time and we can help you get the job done. Clients ARM has a collections rate better than 90% and we provide both first and third-party collections. To learn more, contact us to schedule your free consultation.