DEBT COLLECTION STEPS IN THE COMMERCIAL SECTOR
In the process of commercial business operations, ensuring that the business’s cash flow remains stable is important. However, outstanding debts from partners can also impact the cash flow. Therefore, managing debts and ensuring the company’s cash flow while maintaining relationships with partners is a matter that businesses should carefully consider. In this article, TNTP will present its views on: “Debt collection steps in the commercial sector”.
1. Debts that need priority for collection
During operations, an enterprise may incur many debts with varying degrees of impact. Some debts do not have a major impact on cash flow, but others can significantly impact financial capacity, threatening the stability and development of the business.
Therefore, debts that are likely to cause high financial risks should be prioritized for collection to protect business operations. According to TNTP’s experience, these debts often have the following characteristics: late payment of 12 months or more, large debt value (over 50% of contract value), the debtor has unstable business operations, or shows signs of non-cooperation in payment.
After identifying the debts that need to be prioritized for collection, the next step is to review and reconcile the outstanding debts to determine the exact amount to be collected.
2. Debt reconciliation to determine debt value
In fact, some businesses do not pay attention to the issue of debt reconciliation before collecting debts, which makes it challenging to prove debts for later debt collection stages. Therefore, debt reconciliation is the first and vital step to start debt collection. At this stage, the parties will review and reconcile to confirm the debt owed by one party to the other party based on the contract, invoice, documents, and other evidence that is consistent with the actual transaction.
Businesses may have difficulty reconciling debts that are 12 months or more overdue because it is difficult to find documents to verify the debt and difficult to track the debt. Therefore, businesses should conduct periodic debt reconciliation on a monthly or quarterly basis to ensure monitoring of the debt status, creating favorable conditions for the debt collection process later.
3. Debt collection negotiation
To begin the debt collection process, the enterprise needs to go through a negotiation phase with the debtor, this phase aims to remind the debtor of the debt and the obligation to pay based on goodwill, respect, and cooperation. Through negotiation, the enterprise can assess whether the debtor is willing to pay or not. Therefore, when negotiating with the debtor, it is necessary to limit unnecessary pressure.
A successful negotiation phase will help the enterprise save significant costs and time when collecting debt. Therefore, at this stage, the enterprise can consider applying mutually beneficial payment options to increase the likelihood of successful debt collection and mitigate legal risks that could impact the enterprise and its owner.
In case the enterprise has tried to resolve the debt through negotiation and goodwill within its capacity, but the debtor still does not pay the debt or deliberately avoids the debt payment obligation, the enterprise needs to consider taking other legal measures to collect the debt.
4. Debt collection through bankruptcy proceedings against the debtor
According to Article 5.1 of the 2014 Law on Bankruptcy, the persons entitled to file a petition to open bankruptcy proceedings include: unsecured creditors, partially secured creditors, are entities entitled to file a petition to open bankruptcy proceedings. The time limit for filing a bankruptcy petition is when the 03-month period from the due date of the debt expires and the debtor fails to fulfill the payment obligation.
Therefore, when the debtor violates the payment obligation for more than 3 months (from the due date), the enterprise has the right to file a petition with the competent Court to consider initiating bankruptcy proceedings against the debtor. However, bankruptcy proceedings are often complicated and time-consuming. Therefore, enterprises should consult a lawyer before choosing this option.
5. Conducting the stage of litigation
After applying the negotiation method but failing to collect the debt, the enterprise can consider proceeding to the litigation stage. According to the provisions of law, litigation is the order and procedure for resolving disputes arising in a legal relationship, at that time the dispute resolution agency will have the authority to conduct litigation procedures.
Accordingly, individuals, organizations or legal representatives of enterprises can file a lawsuit requesting the Court or Arbitration to resolve the dispute under legal procedures. The dispute resolution agencies will consider the Petition and supporting evidence to issue a legally binding Decision/ Judgment/Verdict if sufficient grounds exist to establish the enterprise’s legal claim. Through the settlement procedure of the Court or Arbitration to protect the legitimate rights and interests of the litigants
After the Decision/Judgment/Verdict has come into legal effect from the competent authority to resolve the dispute, forcing the debtor to pay the debt to the enterprise. The enterprise can proceed to the Enforcement stage, allowing the competent Enforcement agency can take necessary measures on behalf of the state to compel the debtor to comply with the legally binding Decision/Judgment/Verdict.
Above is an article by TNTP lawyer on the topic: “Debt collection steps in the commercial sector”. Hopefully, this article will provide an overview of businesses’ debt collection activities.
TNTP & Associates International Law Firm
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