When you’re closing your business, one of the most important steps you should take is claiming your business’s outstanding accounts receivable. In this guide, we’ll walk you through the steps you need to take to collect the money you’re owed.
What do I need to do first to collect the money my business is owed?
The first step you should take is determining how much money your customers, distributors, and others owe your business. Using your business’s accounting program, make the following calculations:
- The full amount that your business is owed
- The sum of the receivables that are at least 30 days old
- The sum of the receivables that are at least 60 days old
- The total of the receivables that are greater than 90 days old
The age of your accounts receivable is often a good indicator of how likely you are to recover the balance: Receivables less than 30 days have the greatest likelihood of being paid while aging receivables are less likely.
|Older receivables are the most challenging to collect, but according to Dun & Bradstreet, it’s not an impossible task. Their research shows that receivables that are 90 days past due have a 69.6 percent chance of being paid with a scaling set of strategies.
Using strategies, like the ones mentioned in this article, should help you collect on the bulk of your accounts, but keep in mind that you may not be able to collect the entire balance of your receivables.
What do I do next?
Next, send invoices to each party, requesting payment for the full amount they owe your business. Include an easy-to-find due date, and state the late fee you’ll charge for payments made after that date.
Should I mention my plans for closure?
At this stage in the process, you should not mention that your business is closing. Here's why:
- Your customers may be less inclined to maintain a positive working relationship with you. Some will ignore your requests for payment because they’ll doubt there are repercussions for late or missed payments from a business that’s winding down.
- Business customers may have policies that prevent them from paying individuals rather than business entities for services rendered. If your business closed before they made payment, then they’d have difficulty submitting the balance owed.
The due date has passed, and I’ve collected some of my receivables. What about the ones that haven’t responded?
It can be tempting to send a follow-up letter or invoice, but a better strategy is to call the customers and distributors who owe you directly.
The purpose of your call isn’t to act aggressively or threaten ramifications. Instead, you should politely ask your customers whether they’ve received your invoice and offer to accept payment over the phone. This direct approach should help you to collect a significant number of your unpaid receivables.
Some of your customers may decline to pay by phone and promise to submit their payments the conventional way. Before accepting their promises, you might consider offering a small discount that entices them to pay their full balance on the spot. Depending on the size of their bill and the amount that you’re comfortable writing off, you might opt to offer a 5-10% discount on their total balance. This approach can be a smart move because the opportunity for savings can compel customers to pay up on balances you may not have otherwise been able to collect.
I still can’t collect the money owed on some of my accounts. What should I do?
There are a few other tactics you can try to collect the outstanding accounts:
|1||Make another phone call and offer a higher discount that allows you to collect the bulk of the balance. If your customer is a business, you may consider asking to speak with a manager or the owner to resolve your claim.|
|2||Visit the customer in person. Be kind but clear with your request for payment. Ask what you can do to collect the money your business is owed. If your customer hesitates, offer an even greater discount for immediate payment.|
|3||Write a letter to your delinquent account owners, informing them that their accounts will be turned over to collections or presented to a small claims court if payment is not remitted by a stated deadline.|
|4||Send the account to a licensed, bonded collections agency. Choose an agency that has a good reputation and follows state and federal laws for debt collection. It’s important to note that many agencies will keep a portion of the balance (often 50% of what’s collected) as payment.
Here are a few popular agencies you might consider:
|5||For balances that are less than or equal to $5,000, you can file a small claims case with the county clerk’s office. You may be required to sign an affidavit that states that you’ve made genuine efforts to collect. You may also need to complete a Statement of Claim form and pay a nominal filing fee, which can range from $15-$100. In most cases, you can complete the claim without an attorney’s assistance.|
|6||File a civil case for balances larger than $5,000. For civil cases, you may need to hire an attorney and pay a much larger filing fee. The amount of that fee is set by the municipality in which you file.
Would you like to connect with an attorney? Click the Connect button below to get started.
|7||Sell the receivables that haven’t been paid to a factoring agency in exchange for a percentage of the invoice. This approach won’t help you to recoup the total amount you’re owed, but it will enable you to receive a small part of the balances you’ve been unable to collect.
By working sequentially through these practices, you should be able to recover a hefty percentage of your outstanding receivables.
After recovering the money you’re owed, you can prepare to sell your business’s assets, pay your outstanding debts, and prepare your final tax filings. We can walk you through every step you’ll need to take. Log into your owner’s portal to access articles and a personalized checklist for closing your business.