When you first start a business, you think it’s going to be easy. People buy things, then they pay you for them. It’s great in theory, but life doesn’t always work out that way. Frequently customers and clients are unable to pay their bills, or choose not to pay their bills. Unpaid bills can of course put your company at risk of being unable to pay your own bills.
This leaves you with a choice. Do you pursue the unpaid debts yourself, or do you hire someone else to do it for you?
If there is still communication between you and the one who owed money from you, then it is best to talk and negotiate with him or her for an amicable debt settlement. However, if there’s none, then you might want to either file a claim in the small claims court depending on the owed amount or outsource it to collection agencies.
As with some countries, the Philippines has a court for small claims. If the amount owed to you is 200,000 or less, you may want to resort to this. Small claims can be filed in the Municipal Trial Court where you or the one who owed you resides. You don’t need a lawyer for this. All you need to do is to accomplish forms, submit documents to support your claim, and pay the corresponding fees which is minimal compared to the costs of hiring your own lawyer. The court will then review your case and send a summon to your defendant.
Otherwise, if the involved amount is bigger than 200,000, then you can outsource it to collection agencies on a ‘no cure- no pay’ instead of hiring your own lawyer.
Most reputable collection agencies will not charge you unless they are able to recover your money, so hiring a collection agency may save you money. The longer it takes to collect debt, the harder it will be to collect and the longer your company will be out of money.
In addition to the legal and financial reasons to hire a collection agency, it can be better for you emotionally and for your business’s reputation. It’s difficult to remain level-headed when faced with difficult or stubborn debtors. When debtors remain elusive or act unreasonably, it can be easy for business owners to lose their temper and act unreasonably themselves. You could end up sending threatening messages or publicly destroying the debtor’s reputation, which can backfire and damage your own business instead.
Hiring a collection agency also offers legal protection. Debt collection has its own legal implications. Most agencies have lawyers in them so they can make sure that they are pursuing your debt legally.
None of this is to suggest that the minute an invoice is late you should send your customer to collections. You want to make sure that you are sending invoices in a timely manner, making it easy for clients to pay you, and following up with clients about late invoices in a polite and timely manner.
Although there are exceptions, for example if you think a company is going to go out of business, generally speaking, you should consider sending a company to collections if an invoice is 90 days or more overdue.