Collecting A Personal Debt

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There is a common assumption that debt collection is something that only business owners experience, but this is definitely not true.

Sometimes, people give loans to their loved ones and relatives. Collection of debt from them can become difficult. This is an example of a personal debt.

There are many ways to cover the owed amount. One is through legal methods such as court proceedings.

Choosing to use the legal method can be a lengthy and tedious procedure.

Your time must be spent visiting the courts or solicitors frequently.

This can be avoided and time can be saved if you work smartly.

Collecting a personal debt, if handled improperly, can affect your relationship with the person or the company.

Avoiding the involvement of the courts is an option. If the debtor can pay the amount or a payment plan can be arranged, this will end the matter amicably.

Here are some tips for resolving personal debt collection issues.

Ask for a Signature Before Lending Money

If you are lending the money, either to a business owner or a private individual, make sure you take a record of this transaction in written form.

It is also advisable to take a signature from the person. This will help if you later face any issue in collecting the debt.

The person does not show any reluctance in paying it back to you.

In the case of personal debt, many people worry that getting a written note from a friend or relative may seem impolite.

This is perfectly understandable, asking for a signature is perfectly appropriate.

Often, if the person you are loaning money to is reluctant to sign anything, then it is probably a sign that they don’t intend to pay you back anyway.

Payment terms are normal for most business agreements. For private transactions, it is quite normal for them to be arranged verbally.

Having an agreement in writing makes everything clear to all parties, and will help to enforce a repayment if the situation later calls for it.

A written agreement should state the details about the loan, its amount and the repayment terms.

You can choose the conditions of this agreement. You are able to set the time for which the loan will need to be repaid, the interest percentage and any other details relating to the money.

If the person later fails to pay back the debt, you can use this agreement to help enforce its collection.

This agreement is similar in principle to a contract, and without this collection of debt may become difficult.

Take the Route of Agreeing on a Debt Settlement

It is important to remember that the debtor might have some genuine issues in paying the money back.

With people’s financial position becoming more challenging every day, this can affect the repayment of any personal agreements.

This does not mean that you should not ask the debtor to return the money. Instead, you can come to a compromise with the debtor and change the loan’s repayment conditions.

This is so that the debtor can comfortably repay you.

If this is the case, then drafting a new agreement with the altered conditions is acceptable.

With this, you can choose to extend the time of loan repayment or decrease the interest rate.

These adjustments will make it easier for the debtor to repay the amount.

This adjusted agreement is not only an effective way of recovering a debt, but it also helps develop a healthy relationship between the creditor and debtor.

For a business, this is especially important. Adopting a ‘heavy-handed’ approach will most likely burn bridges and ruin any future opportunities to work together.

Often, it is better to do this rather than enter the legal process immediately. All cases should be taken on their own merits, and each one requires a different approach.

Communicate in a Professional Manner

If the debtor is unable or unwilling to repay the money you loaned them, it is only natural to become frustrated or impatient.

Approaching the debtor in a confrontational manner is not advised.

Maintaining a professional, polite and moral approach to all communications will make the entire debt collection process smoother.

If your debtor has not repaid you according to the initial agreement, then the first thing you should do is contact them.

It is very likely that the debtor has simply forgotten to pay. Sending a polite notice to them which reminds them of the payment date may be enough to recover your money right away.

If the debtor cannot pay, then they may respond to you to explain why. You should remain calm and professional at this point no matter what the reason.

Becoming aggressive at any stage can be harmful, as the person may use this as a reason to cut all ties with you. Retaining a polite and professional demeanour will not give them this opportunity.

The best way to get the debt is to be professional and cooperative with the person if their issues are genuine.

Send Them the Notice in Writing

If the debtor does not respond to your repayment requests, then you can send them written notice.

Your notice should include how many days have passed since the date of repayment, and it should alert them that it is time for them to fulfil their payment obligation.

It is recommended to keep a copy of that letter. This will if you have to contact a debt collection agency later in this process.

Collecting a Personal Debt – Instruct a Professional Debt Collection Agency

If you have tried the methods detailed above and the debtor is still refusing to pay, then the best course of action is to contact a debt collection agency.

If you own a business or are self-employed, then taking help from the debt collection agency is the best option.