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5 Tips For Small Texas Businesses Debt Collections

5 Tips For Small Texas Businesses Debt Collections

There are several best practices to help small businesses find success. One of them, of course, is getting paid. After all, did you go into business to provide your products or services for free?

I’m going to take a guess here and say that your answer is a hard no.

In business, owners can find themselves losing their patience waiting for payment. But before you start acting as your small business’s debt collector, there are a few things you should know. 

Debt Collection For Small Business Owners

You would much rather work now to prevent harsh consequences later. Small business debt collection is one of those scenarios. 

1. Keep A Close Relationship With Your Bookkeeper

It’s important to realize that your contract with your bookkeeper is essential. After all, you are entrusting them with your business’s finances. 

To make the most of your relationship with your bookkeeper, you should sign a well-written contract. And make sure to include Errors and Omissions (E&O) Insurance as an absolute must for your bookkeeper.

When it comes to invoicing clients and paying bills, your bookkeeper may take a lot of stress off your shoulders. However, you should also keep in mind that a contract does not place all the responsibilities on your bookkeeper. Ultimately, your finances are your responsibility. You will be working with your bookkeeper to keep your finances in order. 

So don’t assume invoices are in the mail, payments are being sent, or even that your bookkeeper isn’t embezzling money from your business. Instead, walk through the finances regularly with – and without – your bookkeeper. You should still know everything going on even if you have paid someone to handle the paperwork.

Are you in the stage of your business where you’re starting to hire vendors, including a bookkeeper? Make sure you’re protecting yourself and your business from hurried and careless contracts. Contact Carson Law today to discuss your business contracts. 

2. To Ensure Payment, Start At The Beginning

So many aspects of running a business depend on good standing. On that note, make sure you start on the right foot. 

The best way to protect your business is to ensure that you are using the right kind of legal entity and have a good operating agreement in place. For some business owners, that may be an LLC. But for others, it may be a corporation. This is something you’ll discuss with your business attorney to make the right decision. 

Once again, contracts are crucial. Be careful about drafting quick contracts, or signing something that you don’t understand, to get them out the door. And be aware that invoices are not contracts.

When you agree to provide a product or service to a customer, a good contract will contain the appropriate stipulations. Moreover, a good business attorney will include the repercussions of non-payment.  

Additionally, setting up your business correctly can also protect you from debt collections you owe. For instance, an LLC can help protect your personal assets from being taken as payment for business debts. However, if your business credit card or lease agreement have a personal guarantee, then you may still face liability. This is one of many reasons why it’s so important to not take on more debt than you can pay. Especially if you are pledging personal collateral for your business’s credit line.

Business disputes can lead to tricky situations. If not dealt with appropriately, one or both parties could suffer financial consequences, or worse. Don’t leave your small business up to chance. Contact Carson Law today. 

3. Require Deposits For Large Orders

2020 brought to light the many risks that small business owners deal with. And we are all aware of what a lockdown can do to varying industries.

Imagine if you own a business where you provide custom products. A customer orders $50,000 worth of products, then bam – a lockdown cancels their upcoming event. They no longer need the products. 

Meanwhile, you are sitting on a whopping 50 grand of custom-made inventory that can’t be resold to anyone else with no payment in sight. Economic crises hit both the buyer and seller in this case. You, the seller, are now in the red. However, the buyer can’t pay for the products without the income from their own business – which has also come to a halt. 

If you’ve been in this situation, you’ve likely replayed the entire situation in your head. What could you have done differently?

To start, you could have required a hefty deposit for such a large order. That way, you wouldn’t initially be out $50,000. Secondly, you need a contract. See a theme here? 

A good contract would stipulate that monies are still owed, despite acts of God canceling plans. Some businesses may allow clients to cancel orders in some circumstances. But in this case, these are custom products, and that is not an option. The information in this contract would have informed the customer of their financial risk and obligations. They could have easily opted for non-custom products from your business. And because of a contract, the entire situation could have been avoided.

4. Know The Difference Between Money Owed & Money Payable

To piggyback off the above scenario, what are those business’s options now? Without a contract, probably not much. However, even with a contract, the buyer cannot make payment. 

Are you going to spend tens of thousands of dollars chasing a debt that isn’t payable? This is where understanding the difference between money owed and money borrowed comes into play. Money owed is what someone else may be indebted to you, such as an unpaid bill. On the other hand, money payable depends on whether that person actually has the funds to make the payments.

Sometimes it’s better for the seller to accept some payment – even if it’s not the full amount. Furthermore, there are rules businesses must follow when collecting debts. The Texas Office of Consumer Credit Commissioner outlines prohibited practices when collecting consumer debt, including:

  • Contacting anyone before 8am or after 9pm, unless agreed upon
  • Contacting someone at work if their employer disapproves
  • Harassing, oppressing, or abusing any individual they contact
  • Using false or misleading statements 
  • Threatening to arrest, seize, garnish, attach, or sell one’s property or wages
  • Sharing false credit information with anyone
  • Engaging in unfair practices as a debt collector
  • And more

All this to say, if someone owes you a debt, it does not give you permission to retrieve payment in any way you wish. This is another reason why working with an attorney when you are owed or owe debts is incredibly important.

5. Get The Right Business Attorney In Your Corner

Whether you are attempting to collect debts owed to you or are trying to figure out how to pay your own outstanding debts, it’s time to speak with an attorney. When it comes to your business’s debt collections, you specifically need a business attorney in your corner. 

Business attorneys differ from other types of attorneys because of their experience and expertise. After all, you wouldn’t go to an Ear, Nose, and Throat doctor for a sprained ankle, right? Similarly, you wouldn’t hire a divorce, medical, criminal, or probate attorney to handle your business. 

Protect your business from the very beginning by getting the right attorney.

Set Your Small Business Up For Success

You’ve worked too hard to not give your small business the fighting chance it deserves. While small business owners may cut costs where they can to keep overhead low, your business attorney shouldn’t be one. In fact, a business attorney can help you to avoid making mistakes that will be excruciatingly costly down the line. 

Whether you’re still brainstorming your business idea or have been in business for decades, Carson Law can help you succeed. From startup to acquisition, we help small businesses thrive. Contact us today!