We are in business to provide customers with our products or service — and get paid in return. But what if the customer does not pay? How should we collect on the payment? What are our options?
According to the book “The Law (in Plain English) for Small Business,” we basically have three options:
1. Do Nothing. If the amount is small enough, collecting the payment may be too much of a hassle compared to the amount to be collected. Of course, not collecting on the payment means you also need to stop dealing and servicing the customer.
2. Hire a collection agency. Collection agencies will cost you, but they will do the work of running after the deadbeat customer. Some will charge you a commission (as high as 50%) based on the recovered amount. Others will charge you a fixed fee, while some agencies will charge you an upfront fee in exchange for lower percentage of the collected amount. Be careful though that the collection agency follows the federal and state rules and procedures for collecting payments; otherwise, you can get in trouble for their misdeeds.
3. Sue the non-paying customer. If the amount to be collected is large and the customer failed to respond from previous efforts to collect the money including formal demand for payment, then you can file a lawsuit against the customer. You can file a case in a small claims court or in a conventional court.