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Debt collection on the web - chasing overdue payments

I guess most of us who have spent any reasonable amount of time in ecommerce have had the very undesirable task of trying to extract payments from non-paying partners and clients, and invariably having to write some of it off as bad debt. This is the aspect of doing business that I hate most, but it has to be done.

Bad debt scenarios can be very frequent depending on the industry sector and given the global nature of the web; collection of outstanding debt can be impossible - or is it? Is threatening legal action and then hiring lawyers to chase debt for you a good way to go?

Bad debt = business failure

During my initial year on the web with a commercial presence, I lost thousands of dollars through partners not paying affiliate commissions I earned or clients suddenly disappearing. I rapidly learned, sadly, that each new partner needed to be approached in such a way that the chances were they were going to screw us. I also learned about the massive sales leaks that can occur with affiliate programs. I've provided further resources on this aspect at the end of this article.

While I had a solid background in small business and had experienced problems with debtors before, I was amazed by the brazen nature of some of our "online" debtors. In one particular instance, the partner admitted to owing the money and simply said "I'm not paying it" after months of promises and weak excuses why the account hadn't been paid. I was based in Australia, he was in Europe and after many months of back and forth, I gave up.

Aside from the money he owed us, there was also the added labor cost of following him up and lost profits through not being able to attend to other aspects of the business. The cost of bad debt is not by any means limited to the outstanding amount - with just a few major occurrences, a small business can be toppled.

Recover your lost money via OldDebts.com discount debt collection agency. Collect delinquent accounts, past due invoices, judgments, and nsf checks. Free account setup, & no contingency fees. Featured on CNN Finance.

Consider using a debt collection agency

Regardless of where you live, there is something you can do about overdue accounts. There are many debt collection companies on the web now who, for a small fee, will act on your behalf to follow up the debt. These companies will send letters to your debtors, follow up via phone and can even report the defaulter to a credit reporting agency - something that your debtor *definitely* wouldn't want. These companies have the expertise in extracting the payments from debtors - and no, they don't threaten to break anyone's legs ;).

Other debt collection companies will only charge you a percentage, usually between 20-30 percent, if they are successful in collecting the debt.

If you're experiencing debt collection problems and don't have the time or inclination to chase payments yourself, here's a few services worth checking out:

Old Debt: For a small fee, Old Debt will issue letters of demand on your behalf, plus phone calls and also access to report the outstanding debt to a credit bureau. Old Debt claims a debt collection success rate of around 20% after the use of the basic letter of demand service and much higher when used in conjunction with some of their other collection services. Featured on CNN Finance

1st Locate: one of the UK's leading Trace & Collect specialists, offering services worldwide - professional debt collection, 2nd placement and write off recovery service.

Do-it-yourself debt collection

If you intend on carrying out debt collection yourself, here's a few tips to keep in mind.

Gather/record all the information you can

Be prepared for a drawn out battle and ensure that you have all the history of the debt together. Any emails that refer to business arrangements or finances should be brought out from archives and keep notes on every phone call or email you make in relation to the debt.

Be professional at all times

The worst way to go about collecting a debt is to start making threats or using aggressive language. In the first couple of contacts, keep the tone friendly - there may have been a misunderstanding or circumstances that have prevented a partner/client who is traditionally a prompt payer from settling the account. To begin with, give them the benefit of the doubt.

If, after a few communications, you still haven't received payment, remove the friendly tone, but remain professional. Do not ask for payment any more, but demand it. Do not threaten legal action unless you fully intend on carrying it out.


If a client says the payment will be made by Wednesday, follow them up on a Wednesday evening. By doing so, it lets them know that you can't be fobbed off easily. This is especially important if the debt is held by an overseas client. If they don't respond to an email within 24 hours, call them via phone. The annoyance you'll cause them will help speed payment in most instances.

Personal visits

Some people are quite happy to ignore the sternest of emails, but turn to jelly where there's a threat of a face to face confrontation. Try organizing with the debtor to visit them personally if this is possible. They may suddenly pull out their checkbook without you even needing to step outside your door. If you do decide to drop in either through an arranged visit or unannounced, ensure that you remain professional at all times whilst on the premises - otherwise you may find the police hauling you away. It's a good idea to take someone along with you as a witness (and as added pressure).

Offer alternate terms of payment

If it appears that a client is struggling, but doesn't want to admit it, try offering terms - but don't make the terms so generous that it will take them a long time to pay off the debt. Also cease further work for this client while the debt is being paid off.

When nothing works..

If you've tried everything and you still haven't been able to collect the debt, a call to your lawyer is worthwhile, or trying a debt collection agency as mentioned. Sometimes if a debtor sees that a third party has been brought in, it will rattle them enough to settle the account.

About legal action

Many people threaten each other with legal action over debt; but the truth is that using the court system to collect debt can be very tedious, stressful and expensive. Depending on the country, it could be also be very impractical.

Firstly, your lawyer will need to provide the debtor with a letter of demand formally threatening legal action. If it still isn't paid and goes to court, then you will need to prove to a court that the debt is authentic. If the claim is proved, then the debtor will be given further time to settle the debt. If the account is still not paid, then you need to organize for the seizure of assets - and in many cases the assets of companies are leased or under someone else's name - leaving you with nothing to actually seize.

In a nutshell, a debt needs to be many thousands of dollars before heading to a court, with the exception of circumstances where the debtor is located in your state/country and you have access to a small claims tribunal.

Bear in mind too that every time you speak to your lawyer or instruct them to do something, it's going to cost you money - a further amount that you will need to claim from the debtor. If the debtor is already in dire financial trouble you may find yourself, even after successful legal action, a lot worse off.

Rather than a full court case, the strategy of reporting the debtor to a credit reporting agency is probably the better way to go, as a blemish on a credit report can prevent the debtor from carrying out business effectively and obtaining other lines of credit.

But, as the old saying goes, an ounce of prevention is worth a pound of cure...

Minimizing bad debt

A lot of unpleasantness can be avoided by following some simple guidelines before taking on new partners and clients.

Assess your partners and clients

Before doing business with anyone, I'll always search for their company on the web to see if there's a tendency for others to portray the company in a negative light, or if there's any indication that the company may be over-extending itself. Industry forums are an excellent place to find further information. 

The other thing I take note of, and this will sound very unscientific, is gut vibe. If I get a bad feeling about a business deal, regardless of how much money the client is stating they'll spend, I won't take it on. If you're doing business online, try to arrange at least one phone call with the other party before commencement.

In most countries, you can also gain a credit report on companies for free, or at a very small cost. The fee for a credit report is well worth it if the business arrangement comes to thousands of dollars.

If the prospective client/partner is hesitant in supplying full contact details, see this as another red flag.

Introduce a late/bookkeeping fee

Many businesses now have late fees written into their terms of service. Bookkeeping and administration can be a substantial cost in running a business, so why should your business have to foot the bill for someone else's tardiness? If your clients are made aware of extra fees for late payments *before* you commence doing business, they may think twice about delaying payments. It's surprising how many businesses operate on "final notice" methods of account payment.

Record keeping

Wherever possible, keep discussions about financial arrangements away from the phone; email is preferable as a written record is worth more legally than the report of a phone conversation. If you do find you need to discuss/follow up via phone, keep a record of the date and the contents of each call.

Before commencing business with a new partner or client, ensure you have all the contact details that you can possibly can lay your hands on. Contact names, addresses, telephone numbers, other "trading as" business or company names, company registration numbers, license numbers etc. If you're dealing with an online company, get a copy of the current WHOIS details regarding the domain name registrant:


Debt collection is definitely one of the worst aspects of running a business. I don't think that I've met anyone who enjoys it, but it is a skill that all business owners must develop in order to survive in a struggling economy where bad debt is on the increase.

Other related resources:

Affiliate marketing revenues - you may be generating sales, but are you being properly credited for them? - Read our affiliate marketing survival guide!

Michael Bloch
Taming the Beast
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