Obtaining a merchant cash advance can be a valuable financial tool–and even a lifeline–for businesses in distress or looking to take the next step in their development, but the process of collecting payments on them can be challenging for merchant cash advance funders.
Delinquent payments can hurt funders’ cash flow and hinder their ability to invest in new projects and their own business. Fortunately, there are strategies to maximize cash advance collections and ensure your business stays financially healthy.
Here are some tips on how to maximize your cash advance collections:
Set Clear Expectations
One of the most important things you can do to maximize your merchant cash advance collections is to set clear expectations from the merchants from the outset and do it in writing. Be sure to communicate the terms of the agreement both before and after the merchant signs the contract, the number of receivables the merchant will be required to deliver to you, the specified daily or weekly amount the merchant will be required to pay and make sure they understand the consequences of not performing under the terms of the contract. Having clear and direct conversations from the outset of the funding process can help prevent misunderstandings and disputes down the line.
Follow Up Early and Often
Most merchant cash advance payments are collected through automatic ACHs, and if a payment doesn’t go through, it’s important to start communicating and following up with the merchant about the reasons for the missed payment. This shows that you are serious about your merchant cash advance collections processes, and helps prevent the merchant from forgetting or procrastinating on making the appropriate arrangements.
Offer Payment Plans
Sometimes, the merchant may not be able to pay the full amount as per the terms of the original agreement. In these cases, it can be beneficial to offer a reconciliation, which is essentially a review of the merchant’s finances to see if the merchant’s receivables have decreased, allowing them to pay the receivables to the funder over a smaller period of time. There are typically clauses in the funding agreement that specifically ensure the merchant will be given more time to pay back the advance if their receivables go down, but if the merchant forgets to exercise their right to reconcile and are going through temporary financial hardship, your willingness to work with the merchant and can help maintain a positive relationship and ensure you get your money, albeit on a slightly extended timeline.
Hire a Debt Recovery and Collection Agency
If a merchant defaults even after you try to work with them, it may be time to employ the services of experienced debt collection experts. These agencies specialize in debt recovery and can help you collect unpaid debts, and have experience in negotiating with merchants and using their legal resources to enforce payment. While using a collection agency does involve a fee, it can be a good investment if the debt is substantial.
Related: How To Hire A Debt Collection Agency
Consider Legal Action
In some cases, legal action may be necessary to collect a debt. If a merchant defaults and ignores your attempts to collect, it may be time to consider legal action. This can involve hiring a lawyer to file a lawsuit against them and eventually obtaining a judgment to enforce the debt. While this can be a more expensive and time-consuming option, it can be necessary to collect a significant debt. Consider working with a collection agency that has experienced debt recovery attorneys on staff to ensure you have all your merchant cash advance collections options available to you from the outset.
We’re happy you found this article informative! Go back to our blog page to find more tips, tricks and guidance on collections, to ensure your business gets paid.
If you have unpaid debts that need to be recovered, commercial debt collection may be a good option for your business. A commercial debt collection agency can help you with the process of recovering past-due accounts and provide guidance on best practices for managing accounts receivable.
Led by a team of experienced commercial debt collection attorneys, Monetaria has helped hundreds of businesses recover and collect their outstanding debts and payments. Schedule a FREE consultation with our expert team to see how we can help you recover your money today!