How to Collect a Debt

Posted on July 17th, 2009 by Marck

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No one wants to owe a person or an organization a big amount of money, and forever be left beholden to pay it. Debt accounts for a lot of financial problems not only for debtors, but also for the people who granted the loan. Here are some ways to collect on a debt.

Compute

The total value of the debt that you’ll collect depends on two factors:

The gross value of the debt refers to the money you loaned to an individual or group at the time.
Interest. Some loans or debts may be paid on the basis of the gross value alone, but most debts come with interest. You can think of interest as the value or cost of the debt itself over time. The value of the interest is typically expressed in percentage, and is added to the gross value of the debt.

When computing for the total value of the debt, make sure that you calculate the total cost down to the last dollar. You don’t want to be short-sold on the debt, but you also do not want to overcharge the debtor.

Study the Terms of the Debt

Some debts may be made through verbal agreements, but this method can prove to be difficult and confusing especially for debts that involve large sums. Most debts are described and detailed in contracts. If you’re collecting a debt expressed in a contract, you need to review the contract for:

Payment terms, where the value of interest is often described and where the schedule of debt payments are outlined.
Payment stipulations, where penalties or sanctions for unpaid debt are described.

There are some cases where unpaid debts may also constitute a breach of contract. You may need to consult a lawyer when you may need to file a case because of non-payment of a debt.

Mediation and Claims

Mediation is one of the best ways to collect on debt, because it does away with the hassle of having to collect on a bad debt through litigation and court proceedings. Here are two ways that you can collect on a debt without going to court:

Arbitration. An impartial party (like a lawyer or a certified public accountant) may serve as a mediator between two parties to settle the terms of the debt outlined in an existing contract, or may help make a new one to suit the needs of both parties.
Negotiation. In some cases, paying a debt may result in bankruptcy for the debtor. Some debts may be re-negotiated to make payment terms more convenient for the debtor, while at the same time providing the guarantee to the lender that the debt will be paid.

In some cases, though, debt problems may be left to the jurisdiction of small-claims court or other forms of litigation. If you do get a reasonable and just deal from mediation, you don’t have to go through court proceedings to collect on a debt.

Debt is a normal part of business, but it can be very inconvenient in the long run. The next time that you’re in the position to provide a loan, make sure that your creditors pay on time to avoid any problems with debt collection.