DEBT COLLECTION TIME
Currently, trading and lending activities are increasingly popular to meet economic development needs, leading to more disputes over debt recovery. Therefore, enterprises are very interested in the most effective way to recover debts, especially when the general economy is under tremendous competitive pressure and affected by the Covid-19 pandemic. One of the factors for effective debt recovery is determining the right time to carry out debt recovery methods, ensuring the debtor’s solvency, and ensuring the legitimate rights and interests of the creditor. In this article, we would like to share our legal experience on how to determine the right time to collect debt in your business, specifically as follows:
1. Time of debt arising
Debt is an amount that one party (the debtor) must repay, including the principal, interest, fees, and other related costs to the other party (the creditor). Debt can arise from buying and selling activities or through debt contracts. Therefore, the time of debt arising is determined when the debtor must pay but fails to perform that obligation towards the creditor when the payment is due as agreed or notified between the parties.
2. Debt collection time
2.1. Based on the time of debt arising
For effective debt collection, debt collection methods should be conducted as close to the time of debt arising as possible. Because, at the stage where the debt has just arisen, the debtor may still be able to repay the debt. At the same time, the creditor and the obligee can quickly contact and negotiate with the debtor. Specifically:
* When the debt arises from 1 month to 3 months:
In our experience, this is the most likely time for debt collection. Depending on the agreement of the parties, the debt at this time may or may not have generated interest on late payment. If there is interest, the amount is still tiny; the debtor can still arrange to pay the principal and interest, if any. During this period, the creditor should regularly urge and remind for the debt collection to be effective. At the same time, the creditor can negotiate with the debtor on the debt term, value, or incentives to pay the debt. Debtors quickly settle their debts.
* When the debt arises from 3 months to 12 months:
This can be when debt collection takes more effort as late interest accrues. The longer the payment period lasts, the more debt is incurred. At this time, the debtor may be lazy or evade because it can no longer repay the debt, making contact with the debtor more difficult. Therefore, creditors need to take more stringent and rigorous drastic measures, maybe even legal ones, so that the debtor is forced to pay by the law.
* When the debt arises from 1 year to 3 years:
During this period, debt collection becomes more difficult because the debtor may no longer be able to pay a large amount of debt, including principal, interest on the principal, and late payment interest. At that time, the debtor is likely to evade the obligation, making it impossible for the creditor to contact to collect it. In this case, the creditor should take legal measures such as filing a lawsuit at a competent Court or demanding the crime according to the criminal law. At the same time, with debts of great value, creditors should seek legal support and advice from law-practicing organizations in debt collection or court proceedings to recover the debt effectively.
* When the debt has arisen for more than three years:
According to the current law, the statute of limitations for initiating a lawsuit to request the Court to settle the debt collection dispute has expired in this case. However, a creditor can still create a law case to be accepted by the Court even after the statute of limitations has expired if: (i) The debtor has admitted part or all of its obligations to the creditor, or (ii) The debtor acknowledges or partially fulfills its obligations to the creditor.
2.2. Based on the time of year:
At each time of the year, enterprises must carry out different tasks such as investing, doing business, summarizing business activities, finalizing taxes, and other financial obligations. Therefore, the financial capacity of enterprises will fluctuate from time to time. From there, choosing a reasonable time of debt collection, ensuring the debtor’s solvency, the creditors and the obligee must determine based on not only the point in which the debt arises but also each period of the year to avoid the case of forcing the obligor to pay the debt causing them to falter and not want to pay the debt.
* First quarter of the year:
According to our practical experience, the first quarter is usually not the right time for debt collection. This is the time when most enterprises start to use capital and assets for investment and business, so they will not have enough money to be able to repay their debts.
* Second quarter of the year:
By this time, the debtor’s business may have already begun to generate profits. However, the debtor’s ability to repay the debt is still limited due to the low profit generated and the need for capital to maintain business operations. Therefore, this is a reasonable time for the creditor to negotiate with the obligor on the payment term or to agree on a time for the debtor to arrange payment gradually.
* Third quarter of the year:
This can be considered a “golden” time for creditors to recover debts because the business activities of enterprises in the third quarter are usually the most stable of the year. The debtor may be able to make payments at this point. Therefore, implementing debt recovery measures in the third quarter has the highest probability of success.
* Fourth quarter of the year:
Whether the debt collection at this stage is effective depends on the debtor’s business results in the year. If the debtor’s business results are promising, debt collection will be accessible, and vice versa. However, this is also when businesses must fulfill many financial obligations such as tax finalization, salary payment, employee bonus, and preparation for business activities in the next year. So, the possibility of debt recovery in the fourth quarter is usually relatively low.
Determining a reasonable debt collection time will help creditors collect debts effectively and better protect creditors’ legitimate rights and interests. However, whether the debt collection is smooth and effective depends on the debtor’s solvency and cooperative attitude. If the debtor intentionally fails to pay or evades the creditor, no matter what time of year the debt is recovered, it is tough to recover it.
In addition, if the creditor wants to take legal measures, such as filing a lawsuit to recover the debt, it is necessary to pay attention to the statute of limitations for initiating a case and the debtor’s attitude and ability to repay. Creditors should avoid letting debts last for more than three years because debt recovery will be more complex, and the ability to recover the entire debt is low. At that time, the case may fall into the possibility that the statute of limitations for initiating a lawsuit expires, and the settlement of the claim and judgment enforcement will also take a lot of time and effort.
Above are our legal shares about the time of debt collection. Hopefully, this article, TNTP, can help you better understand each debt collection time and choose the appropriate time for your case to protect your legitimate rights and interests against debt collection and default on the debtor’s payment obligation.
TNTP & Associates International Law Firm