How can a small business collect a debt?
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How can a small business collect a debt?

Scattered over the country arc many thousands of small businesses. The average capitalization is low — perhaps a few thousand dollars — but in the aggregate these small businesses transact a large volume of business. They are found in the city and its suburbs, in large towns and in small, and at country crossroads. Frequently they are not of sufficient importance to be rated in the mercantile books at all, but in the sum total their transactions are imposing; and the large wholesale houses of the country look to them for support

The smaller the business, the more important is the matter of collections. Ready capital is limited and must, of necessity, be kept in hand. If the small owner did not collect closely, he would not be able to meet his own payments promptly or keep his business moving properly. As a matter of fact, however, both the accounting methods and the collection practices of these small concerns are frequently of the most ancient and inefficient character. Better methods would bring about fewer failures, better bank accounts, better business conditions, and a more rapid promotion from the ranks of the small concerns.

So,How do you collect money owed from customers?

The pressing question is how can a small business collect a debt. The point that cannot be too strongly emphasized in connection with small accounts is the necessity of a close follow-up. This is true in a general way with all accounts, but more particularly so with the small account. If it is not closely followed, it is neglected, forgotten or purposely evaded by the debtor. If, on the other hand, it is properly followed up, fraudulent evasions will be few ; customers will never be allowed to run into debt beyond their means; and, if any turn of circumstances makes it really impossible for them to pay what they owe, the loss to the owner will not be serious.

Think before your extend Credit

The great trouble in the case of the small business owner, is the difficulty of refusing credit. It is not pleasant to decline to trust a customer under any circumstances, and when this customer prefers his request for credit with a tactical skill born of long experience, it requires more strength of character than the average storekeeper possesses, to refuse. Especially,this is true when there is a competing store and the owner fears that a refusal to grant credit may drive the customer into the arms of this competitor.

In small towns,the standing of those who apply for credit is usually well known to the owner, and he understands exactly what risk he is taking. In the city the difficulties are greater. It is almost impossible for the ordinary small storekeeper to ”size up” the applicants for credit with any accuracy. Competition is keen, and he cannot risk offending his customer.

Secure Potential Credit Information

Many times the small business owner gives credit when he would not if he were an entirely free agent. If he must give credit when he would rather not, keep this credit at the lowest possible figure. If client,s accounts will not justify the careful investigations and close watchfulness that prevail where larger credits are at stake, give such care and watchfulness as yhe can.

If you must give credit when you would rather not, keep this credit at the lowest possible figure.

To this end ,he should secure as full information about applicants for credit as may be done without neglecting more important matters. After the account is opened, let him watch the customer as closely as he can; and in all cases of doubtful credit let him keep the indebtedness at the lowest possible limit.

Use the services of a big data agency or a retail credit association

The sources of information for the small owner are not as abundant as for big data agency,s like Dunnly. The applicant for credit should be closely questioned. Queries on “Other customers” will afford a valuable means of securing information. References given by the applicant for credit will supply the owner with further data.

An alternative channel is to be a member of the retail credit association, which keeps at its office a secretary for the purpose of supplying its members with just the credit information the small owner needs. Such an association is co-operative in its workings, the members coming to it for information, and in turn reporting any dereliction of the people to whom they give credit. As a consequence, the black sheep in the fold so guarded are pretty sure to find that they are blacklisted and must pay cash for what they secure ; and that, as far as the membership of that association is concerned, their careers as petty swindlers are barred.

Where the credit association does not exist, the small owner must make his own investigations. Frequently he can secure much information from his other customers. Shoppers at the small stores are very apt to be gossipy, and by discreetly leading up to the affairs of the “credit risk,” the owner can usually get information in quantity. He must use judgment in applying this information, and should, if possible, get the point of view of several of his customers, as a single opinion may be prejudiced or unreliable. When he has this, he can usually, by comparison and elimination, discover with fair accuracy the property,standing and reliability of the person who wishes the charge account

How to open an account and what to ask for?

One of the first questions to ask the applicant for credit is his exact name. There are but few names that are not more or less closely and numerously duplicated, and, if the individual is ever to be traced in case of need, his full name must be recorded. The storekeeper must also be particular to get the correct address, street and number, of his customer, if the town is one of any size. Also, where he is a newcomer, his former address should be secured. Where the account is likely to be more than a petty one, this will give opportunity for investigating his standing with tradesmen in the place from which he came. For this purpose the applicant should be required to give the names of at least two merchants with whom he has done business, and a confidential letter should be sent to these merchants asking what amount of credit they extended him, and the manner in which he met his
bills.

Another method of opening an account and of getting security for its payment at the same time, is to require the customer to sign an application for the line of credit he wishes — ^say to the amount of $1000. If he is anxious to get the accommodation, he will be perfectly willing to sign this application, which can be so drawn up that it is in fact a note, giving the merchant, in case of non-payment, an assignment of wages and a lien on all personal property and real estate owned by the applicant. This note can also be made to acknowledge judgment on non-payment, and when properly drawn is a strong security.

If the merchant decides to use this method, it will profit him to pay a good attorney to draw up the application according to the statutes of the state in which he is doing business. The form should contain the name and address of the applicant, the name of the employer, the wages received, the name of his wife, the number of children, the date of pay-day, references, and any other data desired. The merchant will thus secure all the information he needs from the form itself and will be sure that he has not overlooked any points.

If it can be done without giving offense, the smaller city owner, or anyone else selling to wage-earners, should make weekly payments of accounts a condition. As a rule, accounts will not reach serious proportions inside a week, and, if the owner insists strictly on weekly payments, he is not risking a great deal.

How to collect?

The smaller owner should constantly keep in mind that, no matter how satisfactory the volume of business, his profits depend upon the collections of his accounts. It avails him nothing to sell goods if he does not get paid for them, and goods in hand are better than a bad account .

If an account is not paid promptly on the proper date, the first step is to make out an itemized statement of the account, giving the debtor’s full name, and either call on him or write him a letter asking him to call at the store. A heart-to-heart talk will usually bring about an understanding of the situation. It will also bring a good deal of information as to the customer’s real financial status. If he cannot make full payment at once, It may be possible to arrange for a certain amount down and weekly payments for the balance. An honest man will be glad to make such an arrangement; and, if collections are closely followed, the money will eventually be paid. Or in some cases the customer may be willing to give an order on his employer for the money due. If so, the employer must be followed up as regularly and carefully as if he were the customer, until the amount is paid.

In the case of laboring men who are behind in their payments and will not give an order on their employers, it may be necessary to call on the owners direct, or to notify him of the overdue account and request his assistance in securing its payment. This, however, should be done with discretion, or it may result in the dismissal of the employee, with a resulting loss to the owner of the entire account. unable to pay at the time, and will perhaps carry him for weeks or even months. In such cases the owner knows the customer and relies entirely upon the personal equation, feeling confident that the credit risk will “pull out,” will pay for what he has already had, and will thereafter be a steadfast and profitable customer. Such a proceeding is somewhat outside the realm of ordinary business, but is entirely justifiable and in fact commendable. The owner should, however, be sure of his man, or otherwise he may suffer a financial loss, and in addition a loss of confidence in human nature, which is even more serious.

Credit must be given. But the owner must remember that it is worse than useless to sell goods unless he is paid for them, and that it is as much a part of his business to see that payments are made as to sell the goods in the first place. Do not let accounts run behind. If fixed dates for payment have been agreed upon, payment should be made upon those dates, or the matter should be taken up at once for investigation. Good reasons may be given for a temporary postponement, but if the owner is wise he will not let these postponed payments aggregate any large amount.

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