CONDITIONS TO CONSIDER EXTENDING THE PAYMENT TERM FOR THE DEBTOR
In the process of performing contracts and transactions between the parties, the incurrence of debts is a possible situation. When a debt arises, the enterprise needs to promptly identify and have the right to request the partner to pay immediately or propose an extension of the payment term to protect the interests of long-term cooperation and demonstrate goodwill between the parties. However, before deciding to extend the debt payment term, the enterprises should carefully consider certain conditions to ensure that their rights and interests are not adversely affected. In this article, TNTP presents some perspectives on: “Conditions to consider extending the payment term for the debtor”.
1. Assess the financial capacity of the enterprise
Before deciding to extend the payment term to the debtor, the enterprises need to consider the financial ability of the debtor. Because the financial capacity of the debtor will determine the ability of the enterprises to recover debts.
a. The enterprises with good financial capacity
In case the debtor is financially able to maintain a stable level. At the same time, the arising debts have greatly affected the cash flow as well as the business operations of the parties, the enterprises can accept the debtor’s request for an extension of the payment term.
Note that even if the debtor’s cash flow remains stable, the enterprise owner needs to take measures to closely monitor the debt situation as well as the debtor’s operations. In case the debtor is still unable to pay after the debt extension period expires, the enterprise needs to take necessary measures to ensure effective debt collection.
b. The enterprises are able to recover financially after the crisis
Usually, the debtor will propose to extend the debt payment deadline because the debtor is facing financial difficulties during its operations. In this case, the enterprises should consider the debtor’s ability to recover after the crisis.
If the enterprises find that the debtor has good financial recovery ability, the enterprises can accept the debtor’s request for an extension of the payment term. In addition, enterprises need to request the debtor to sign a debt reconciliation record or give a specific debt payment schedule in writing. These documents will be used as a basis for determining the debt payment obligation in case the debtor fails to pay the debt after the extension.
2. Assess the possibility of long-term cooperation with the enterprises
In many cases, despite the debtor having debts due for payment, because the parties have a strong business relationship and long-term cooperation interests, the enterprises may consider extending the payment term for these debtors. The decision to extend the payment term depends on the payment capacity and the value of the benefits that the partner brings. In many cases, the partner is no longer able to continue doing business, extending the payment deadline will be a high-risk decision because at that time the enterprises will miss the opportunity to collect the debt in time and the debt is likely to become a bad debt after the extension period. If the partner has the potential to provide benefits that outweigh the value of the debt, extending the payment period may serve as a form of support during their financial difficulties.
Above are TNTP’s legal shares on “Conditions to consider extending the payment term for the debtor”. Hopefully, through the above article, TNTP can help enterprises have more grounds for considering the debtor’s request for an extension of the payment term.
Sincerely.
TNTP & Associates International Law Firm
+84903503285
