FTC Guidelines to Fair Debt Collection

Every small business owner knows the risks involved when you

start selling your products or services on credit. Your customers may not intentionally set out to delay paying you, but if you are not careful, you could end up with a rather huge list of accounts receivables. And if those accounts receivables are not paid in a timely fashion, it can play havoc with your budget and your cash flow projections.

Short of saying “cash only” to your customers, what can a small business owner legally do to collect debts that are owed to them? How many reminders and late notices can you send out before you find yourself violating the law?

The Fair Debt Collection Practices Act requires that any business that attempts to collect a debt treat people fairly and prohibits certain methods of debt collection.

After you have exhausted the standard methods of attempting to collect on a debt, you need to know the limitations that may apply to your particular situation. Specifically, anyone who attempts to collect a debt can contact the party in person, by mail, telephone, telegram, or fax. The law does protect the debtor from being contacted at “inconvenient” times, such as before 8 a.m. or after 9 p.m., unless given permission to do so. Also, be advised that you are prohibited from contacting a debtor at their place of employment if their employer disapproves of such contacts.

Also, the FTC guidelines state that if a debtor tells you in writing to stop contacting them, you are legally obligated to do so. That doesn’t mean, however, that you have to forget about the money that is owed to your business. It simply means that it may be time to visit the small claims court and file the necessary paperwork to collect the debt.

Certain types of debt collection techniques are prohibited, including:

• Any type of harassment. Some small business owners may decide to take an aggressive stance in order to collect monies that are owed to them. Be advised that you may not harass, oppress, or abuse anyone while attempting to collect a debt. (You may also not use obscene language, even though you may be tempted to do so.)
• False statements. No one, neither a small business accounting department nor a collections agency, can make false statements regarding the collection of a debt. You cannot imply that the person has committed a crime, or pretend to be an attorney or a government representative. You cannot threaten that the party will be arrested if they do not pay their debt.
• Using any “unfair” practices. This includes depositing a postdated check before the date agreed upon (and that is on the check), or using any type of deception to make the debtor accept collect calls or pay for telegrams.

If you are unsure of how you can collect on a bad debt, check with your local state’s attorney general’s office and the Federal Trade Commission. Many states have their own debt collection laws, and your attorney general’s office can help you determine your rights.

You might also solicit advice from other small business owners who belong to the local chamber of commerce, or an industry-related group.