Giving Credit Where Credit is Due and Collecting the Debt Due You!

A wooden house in front of several piles of change

While the concept of debt has always remained the same, don’t let this fool you into thinking that you should be managing it with the same practices you had even ten years ago. The truth is, granting credit has become a more commonly integrated practice in society and as such, how one manages it needs to keep up with the times. This is particularly true when it comes to business-to-business receivables.

This has to do with a multitude of changing circumstances. These commercial receivables can appear safer and profitable as you are issuing them to fewer customers and are hoping to increase your profits through growing sales, but this is only an illusion if you are unable to collect. Since the amount of credit issued at any one time is often exponentially larger, when that customer doesn’t pay it can throw a wrench in your margins. While your clients job is to pay you back, your job is to make sure that the debt remains enforceable. I still blame the burglar for stealing, but that doesn’t mean I would advise a potential victim to leave their doors unlocked.

Let’s look at simple ways to keep debt enforceable, so you can thank yourself later. This starts with proper agreements and continues with proper documentation as accounts receivables are managed. Evaluating the risk doesn’t end once the credit account is opened, or the final payment is made.

Most importantly, know who you are doing business with and continue to manage the relationship. This includes knowing the terms and conditions of the agreement and recognizing when something changes in the payment pattern as soon as possible. While operating a business is done with numbers and projections, credit granting has a uniquely human element. That variable is prone to vary based on the person or even just the state of the economy which can easily alter your projections.

How well do you really know the customer you are loaning to? While I know my friends, I do not know where they all bank, what assets and liabilities they have, nor how they operate their business. You want to know them this well. Banks don’t lend money without minimizing the risk.

When you grant credit to a prospective client, it is important to step away from your perspective. It is easy to assume you are the only person that this business or individual is seeking credit from, but the chances are they have other debts as well. One way to ensure you are at the forefront of this list to get paid when money is owed, is to include a personal guarantee clause in any contract you issue. This may not always be required, however, in many cases you should not extend credit without one. It is straightforward, effective, and most importantly it may weed out some clients that you won’t want to be working with right from the start.

A personal guarantee is a separate agreement from an individual at the corporation you are granting credit to. This is usually a corporate officer that assumes the liability if the corporation fails to meet its obligation. If they want you as a creditor to trust their business ability to pay on time, then they should be able to personally vouch for it. Afterall, they know the intricacies of their business better than you ever can.

Every business has their own internal structures, internal liabilities, and internal drama. Some industries may even be more prone to higher risk and as such require a more assertive and documented approach. Whether they are in the cannabis or construction industry, you want to ensure that their problems don’t become your own. A dispute between partners may make finding whom to recoup your money from, indiscernible. A higher interest rate from creditors unknown to you may delay your payment. A failed business may shuffle assets to a shell company which makes the cost of recouping loans worth more than the loan itself.

Pierce through all this smoke and mirrors and headaches with a simple addition to your contracts. A personal guarantee. You need to know who you are working with so you know when the risk calls for this stipulation. Whom shall you go after if all individuals feign ignorance and shift blame? Without a personal guarantee, you may not know.

We often receive accounts for collection because the client has run out of options or is frustrated with the situation, but we cannot spin wool into gold! These accounts often lack the leverage needed to collect on them and they are held onto based on the size of the debt. We then investigate to determine the best approach to collect, but this takes time and resources often leaving the debt more costly to pursue than the debt itself is worth. On top of having a solid A/R management structure, issue a personal guarantee so that you can help us help you.

Tavelli Co. takes the guesswork out of debt collection. With years of experience serving California, our debt collection methods are designed to swiftly collect debts with empathy. We understand that the ability to collect accounts receivable without negatively impacting business relationships is key to respecting both the debtor and represented company. To make an appointment, call (707) 509-5565.

Tavelli Co., Inc. has over 40 years of unparalleled experience in the debt collection and receivables management industry. Our mission is to achieve the right balance between getting clients paid and being empathetic to debtor circumstances, through implementing innovative practices, hiring experienced people, and improving business decisions through analytics. We provide peace of mind to all involved by collecting money with no complaints. Tavelli Co., Inc. takes the time to carefully listen to your customers and share their feedback with you through meaningful data and transparent communication, so you have access to the information you need to make quality decisions and improve your processes in the future. Contact us today and let the debt collection experts at Tavelli Co., Inc. help you set your business up for success.

IMPORTANT: Information provided by Tavelli Co., Inc., any employees of Tavelli Co., Inc., or its subsidiaries is not intended as legal advice and may not be used as legal advice. It is not intended to be a full and exhaustive explanation of the law in any area, nor should it be used to replace the advice of your own legal counsel.

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