There are a lot of misconceptions about debt and accounts receivable management. It seems everyone is an expert, and has advice to share.
But despite the best intentions, much of that layperson advice is either off-base, misguided, or altogether wrong. Here are the five worst pieces of debt-related advice I’ve heard over the years.
1. Be Patient
In many aspects of business and life, we need to be prepared to wait. Many good things don’t happen instantly. But when it comes to money owed to you, it’s a different story. Simply put, patience is deadly. Your payment due date is a commitment by the customer, and you always deserve to be paid on time. An overdue business debt becomes statistically less likely to be paid with every passing day. Try this debt recovery calculator to see what money owed to you is worth in real-time, and be aware of the statutes of limitations in the provinces or territories where you operate.
2. Never Turn Away a Customer
The reality is, not all customers are good for your business. The ones who don’t pay in a timely fashion, or who cause your employees grief in other ways are not worthy of your hard work, high quality and commitment to customer service. Diplomatically firing your worst customers and vetting new ones can lead to fewer losses and much less work stress.
3. Don’t Accept Partial Payments
Some business advisors recommend turning away partial payments after the due date. In a few circumstances this makes sense, such as landlord-tenant relationships where doing so can set a dangerous precedent, can bar you from evicting, or put a stop to any legal recourse you’ve sought. But in most business cases, a partial payment reduces the debt and gets you closer to being paid in full. Some debtors may make a partial payment in the hope a smaller balance will be less worthwhile for you to pursue, so don’t be duped into writing off the remainder. Perhaps the best reason to accept partial payments is that doing so resets the provincial statute of limitations on the debt to its maximum, giving you or your collection agency more time to collect the balance (see #1).
4. Avoid Borrowing Money
The advice of Shakespeare’s Polonius to his son Laertes is often not so sage in business. Sometimes the only way to achieve ambitious goals is through lenders, whether banks or investors. And paying in small installments as expensive equipment earns its keep can be wiser than throwing your working capital into a lump-sum payment, leaving you debt-free but cash poor. By leasing, you can usually write off the full payments as operating expenses. Borrowing has its costs, but the interest (which you also expense) is often outweighed by your tax savings.
5. Never Pay Collection Agency Debt
This is plain terrible advice, yet it's easy to come by on the Internet. Granted, I’m biased as the owner of a collection agency, but here is the truth. Delinquencies reported by a collection agency have a major impact on your business or personal credit score, and in Canada those reports stay on your credit record for 6 years. To lenders, it can be a show-stopper to see unpaid collection agency debt when doing a credit check. And finally (as I revealed for the first time in a recent blog post), those who pay very quickly might even avoid any drop in their credit score. Tricks and games don’t work, and for a number of reasons, it’s smart to pay up right away.
When it comes to advice, whether about business, finance or love, remember that everyone has their own experience and values. Carefully consider the source, and think about how your own priorities and goals may differ. After all, it’s you who will live with the consequences, for better or for worse.
For more advice (the good kind) about debt, be sure to download my 10 Debt Collection Pro Tips by using the link below.