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How Small Businesses can Recover Debt and Improve Cash Flow

Small businesses rely on a solid flow of cash to keep their businesses operating efficiently and profitably. However, when you have un-recovered debts, your cash flow suffers. Below are some tips to help you recover unpaid debts and improve your cash flow.

1. Contact people who haven’t paid their bills.
   The first step in collecting unpaid debts is to contact the individual or company who owes the money. Most companies begin this process by sending letters and/or calling the debtor directly. In many cases, people haven’t paid their bills simply because they forgot, so you may be able to collect a substantial amount of unpaid accounts simply by reminding your customers to pay.
2. Send a letter of demand.
   If you have contacted a debtor several times without receiving payment, it is time to issue a letter of demand to encourage them to pay. This letter should include clear instructions for making payment, as well as a warning regarding your company’s next action if no payments are received. When consumers see that they can pay their bills with less trouble and less expense if the act quickly, they may be more willing to remit payment immediately.
3. Taking the matter to court.
   If making contact with the debtor and sending a letter of demand does not result in payment, you can take the matter to court to force the individual to pay. In most cases, this process is relatively simple. When you file your claim, you can typically include the amount of the unpaid debt, along with court costs. If this process is successful, the court will be able to force the debtor to pay his or her debt.
4. Getting help.
   Because handling debt collection in-house can be difficult, some small businesses decide to hire an agency to handle the bill collection process on their behalf. However, it is important to note that taking this approach will require additional expense. Be sure the amount of money you are able to collect through this agency will justify the amount you must pay for their services.
5. Selling debts.
   If you don’t want to pursue aggressive collection actions in court, it is also possible to sell unpaid debts to a third party. In general, this option will allow you to collect only a portion of the debts you are owed. The third party will then attempt to collect as much from the debtors as possible, but you won’t be entitled to any further payment.

However you decide to pursue unpaid debts, the process can be time-consuming and resource-intensive. Many small businesses choose to utilize a combination of methods in order to maximize recover and minimize collection expense.