Commercial Collections Blog

The Ethics of Business Debt Collection

The Entrepreneurial Mindset

Most entrepreneurs are unique individuals. They treasure the idea of being their own boss and pay a high price to start a business or try and build their business. These individuals have been studied by many professionals to try and sort out what makes them who they are. While much of that question remains unanswered, there is a common agreement that one essential trait is the ability to focus and work toward goals while avoiding distractions.

For most small business owners and entrepreneurs, there is a clear priority on generating revenue. Making sales is seen as a clear sign of getting business done and a concrete movement towards success. Unfortunately, it takes time for many of these individuals to become experienced enough to realize that generating sales and revenue is only part of the game. Those sales must be turned into cash receipts and money that can be used to generate more sales. The issue of debt collection is not an early priority.

Cash is King

Business debt collection does, however, become important to the business person when receivables start to reach a point where they impact a company’s financial survival. Once business owners and managers realize that collecting on a sale is as important as first making it, their approach to the process goes through a transformation. They begin to seek out customers that can pay as well as buy.

Factors Affecting the Approach to Debt Collection

Of course, those same business owners have bills they have to pay and represent receivables to other businesses. Fortunately, most business people seek to run their businesses in an ethical manner. They pay their bills on time and expect others to do the same. However, tough economic times can change that equation.
The first aspect of the ethics of collecting on money owed is understanding the ethical basis of seeking overdue payments. If a product or service has been delivered to a customer in the manner promised with no issue over the work done or products received, the money is rightly owed and it is ethical and necessary to pursue that payment.

The website points out that there are three types of customers that cause business debt to be slow in payment. These are:

• Those that want to and usually do pay on time but are in financial difficulties.

• Those that will pay but delay payments as a part of how they finance their business.

• Those that avoid payments as a standard practice and don’t want to pay.

The second step in developing an ethical approach to business debt collection is understanding these three types of approaches. The specific circumstances of why a payment is late may or may not have a bearing on the right and ethical methods of pursuing that rightful debt.

The methods used in collecting on debt are the third major factor to consider. There are, of course, legal guidelines related to the process and what is acceptable. However, these represent only the lowest level of the overall issue of seeking collection of overdue payments. While there is a requirement to follow the letter of the law, a business owner has the ability and need to establish the ethics they will follow relative to business debt. This starts with who will be granted credit and what the terms of the extended credit are. Likewise, clear and consistent policies for all customers should be clearly communicated.

Once debts reach a point requiring formal collection action, a professional firm is normally engaged. The business owner should ensure that the firm they select abides by the legal and ethical standards they want for their own companies to represent.