Every day, business owners write off debts, sometimes into the thousands, because they figure they have no other choice. Don't let this be you! In reality, small business owners have quite a few avenues to collect besides simply counting their unpaid debts as a loss. Learn about all the avenues available to you to collect what you're owed, and maybe you can write a little more in that profits column.

Settle for Less

To resolve a monetary dispute, many of us immediately think "court!" But wait. It might prove to your advantage to try to settle the matter between the two of you before you bring in a judge. This can be done with something called a collection, or demand, letter. In the letter, list all the details of the debt - what it was for, the total amount, and how you will accept payment.

Remember, your main goal is to recover as much of the debt as possible. In order to do this, it might be a good idea to either set up payment arrangements or accept less than the total amount of the debt. If you are willing to do either, explain this in your letter. Detail the exact amount you'll accept and give an expiration date on your offer for settlement. If you will accept weekly, bi-weekly or monthly payments from your debtor, make sure this is also clear in your letter.

Delegate

Let's say you've sent the letter and you just can't come to a resolution with your debtor. Your next step is to contact the pros - a collection agency. Simply using a third party to settle the problem between the two of you can make all the difference. A debtor might ignore you or just never come to your store again and consider the problem solved; however, no one wants trouble on his or her credit report or a record of collection agency reporting. People frequently will do anything to avoid it. Also, a professional agency's collection attempts will be very formal. Sometimes third party muscle is the proof you need to show your debtor that you mean business.

What exactly does a collection agency do? They take care of recovering your debt. First, they'll let your debtor know that they have been hired to recover your debt. The agency will, if necessary, make calls to your debtor to arrange payment, discuss repayment, and explain the consequences of letting the debt go unsettled. The collection agency will also keep you informed along every step of the way, so that you always know the status of your debt.

And remember, even though you have hired someone else to collect your debt, you still control the amount you'll accept in settlement, the type of payment arrangements, and any other aspect of the settlement amount. Just because you've delegated, you won't lose control over your money.

Take 'Em to Court

If your own attempts and the attempts of a collection agency fail to resolve the debt, you may want to make use of small claims court. Filing a claim is usually inexpensive and pretty easy, but make sure your disputed amount is under the maximum allowed under state law. If your dispute is over that amount, you must file in civil court. Provided your dispute is small enough, all you need to do next is get the correct forms either online or from the appropriate court, and file them.

You'll need to be sure you have the correct address and contact information for your debtor. If any of this is incorrect, it is usually impossible to proceed with your suit. Your small claim must then be served on the debtor, either by certified mail, sheriff service, or a professional process server. Legal methods of serving the debtor, or service of process, are generally dictated by the small claims laws in your state.

All in all, there is no need to completely write off a debt you're owed. When it comes to collecting from a difficult customer or a surly client, you've got options. Your persistence just might pay off after all.

LegalZoom is not a lawfirm and can only provide self-help services at your specific direction. Information contained above is subject to change and is not applicable to every state. Visit LegalZoom.com for specific state-by state-documents.

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