Doing business is always associated with financial risks, and one of the most common is the presence of debtors – clients who have not fulfilled their payment obligations. Debt collection can be a real test for a company, affecting its financial condition and long-term development strategies. This article will consider effective methods and strategies to help companies successfully manage the debt collection process, minimizing losses and maintaining healthy client relationships. Understanding this process’s main methods and legal tools is the key to successful financial activity and business stability.
What are Accounts Receivable
Accounts receivable are amounts that have not been transferred to the company by its business partners for various obligations. Business partners who owe money to the company are called “debtors”. Accounts receivable become debt when the debtor misses the payment deadline set in the contract, and the parties to the contract fail to agree on a different method of fulfilling the obligation. In such a situation, the creditor company has the right to collect debts from the debtor.
However, we recommend negotiating with debtors before using various debt collection methods. To participate in such negotiations, we recommend involving our experienced lawyer, who will represent your interests and draw up the necessary documents.
Why it is Important to Work with Accounts Receivable for Debt Collection
Interaction with debtors and working with debt play an important role in the debt collection process and affect the company’s financial health. Here are some reasons why this aspect of business should not be ignored:
1. Maintaining Cash Flow
Debt collection helps maintain a stable cash flow, which is vital for ensuring the company’s operating expenses and investment opportunities.
2. Building Long-Term Relationships
Effective interaction with debtors allows you to build trusting relationships, which can lead to repeat sales and better cooperation in the future.
3. Minimizing Losses
The sooner a company starts working with debtors, the higher the likelihood of full debt repayment, which reduces financial losses and reduces the negative impact on profits.
4. Improving Reputation
Companies that actively and professionally work with debtors create a reputation as a reliable partners, which can attract new clients and investors.
5. Legal Compliance
Proper work with debtors includes compliance with legal requirements, which helps to avoid legal problems and maintains the company’s image.
In general, competent work with debtors not only helps recover lost funds but also strengthens the business’s sustainability in a competitive environment.
Methods for Collecting Debts from Debtors
Collecting debts on accounts receivable is an important part of financial management for any company. There is no 100% guarantee of collecting debt from debtors, but you can increase the likelihood of collecting the debt using various legal methods. An experienced lawyer will advise you on choosing the most effective method of collecting debts that suits you.
Method 1. Negotiations with the Debtor
The first and most peaceful method is to negotiate with the debtor. Often, debt arises not due to malicious intent but due to temporary financial difficulties. In such cases, you can offer:
Debt restructuring can be an extension of the payment period: It can be a debt reduction, or an instalment plan. Such an agreement is drawn up as a schedule and appendix to the main agreement.
Conclusion of an agreement to change the method of fulfilling an obligation: You can draw up a written agreement to change the method of fulfilling an obligation with a detailed description of the method, conditions, and terms of fulfilment of the obligation. For example, you can replace the obligation to pay for services with an obligation to conduct market research.
Fulfilment of an obligation by a third party: The debtor can be offered to find a third party who can fulfil the obligation to the company for him or offer a third party option. In the future, your debtor can become the debtor of the third party.
Debt transfer: You can offer the debtor the option of assigning his debt to a third party who can pay the accounts receivable.
Advantages: Business reputation is preserved, and a compromise can be found.
Disadvantages: This method requires time and patience and does not always lead to a solution to the problem.
Method 2. Sending a Claim
If negotiations have not led to a result, the next step can be formal notifications. This method can be an independent way of working with accounts receivable since the claim procedure is used by default when negotiations have not led to the return of debts. In this case, it is important:
Send a claim to the debtor – this is a letter demanding debt payment. The claim is drawn up as a letter on paper, which indicates the amount of the debt, the details for transferring the amount, the payment deadline and the consequences of non-payment (usually, they write that in case of non-payment, an appeal to the court will follow).
When sending a letter, we recommend using a postal notification of delivery and an inventory of the attachment: this form allows you to record the debtor’s receipt of the letter.
Advantages: This is not as radical as a court, but it gives the debtor an understanding of the seriousness of intentions.
Disadvantages: In case of refusal to pay, you will need to take legal action, which may require financial investments.
Note that in Belarus, collection agencies’ activities are prohibited, so this method of collecting accounts receivable is not available.
Method 3. Contacting a Notary
When the debtor acknowledges the amount of debt for certain obligations, you can contact a notary to make an executive inscription. An executive inscription is an executive document that can be given to a bailiff for the forced collection of a debt or sent to a bank to write off the debt amount from the debtor’s bank account. You can learn about the documents required to contact a notary during a consultation with a lawyer. You can also instruct a lawyer to analyze the documents on the debt to determine whether the debtor acknowledges the amount of the debt.
Advantages: You can quickly receive an executive inscription (approximately three working days). This can be sent to the bank to collect the debt from the debtor’s bank account.
Disadvantages: You need to collect a package of documents and pay a notary fee—that is, there are costs of time and financial resources. The debtor can appeal the notary’s actions or the executive inscription to the court.
Method 4. Appeal to Court
When the debtor does not agree with the requirements specified in the claim or the notary refuses to make an executive inscription, it is possible to go to court.
You can apply to the court in one of two forms: claim proceedings or order proceedings. We recommend you consult our lawyers to choose the most appropriate appeal form.
Writ Proceedings
The process includes:
- Applying to the court to initiate order proceedings with evidence that the claims are indisputable and the debtor acknowledges the claims (does not dispute them) but does not fulfil them.
- Receiving an enforcement document – a ruling on a court order.
Claim Proceedings
The process includes:
- Filing a statement of claim with the court: it is necessary to prepare documents confirming the debt, contracts, certificates of completion and other evidence, as well as pay the state fee.
- Participation in court hearings and presentation of evidence to the court.
- Application for initiation of enforcement proceedings: after the court decision and receipt of the writ of execution, you can contact the bailiff service for forced collection of the debt.
Advantages: A court decision that has entered into legal force and a ruling on a court order is mandatory for execution.
Disadvantages: The court process can take a long time and require additional financial costs (state fee, attorneys’ fees). The debtor can appeal court decisions and delay the collection process.
Method 5. Using a Guarantee or Collateral
This method can be used when the contract’s terms provide guarantees or collateral. In this case, the company can use these tools to pay off the debt:
Debt collection using collateral: If the debt is not paid, the company can collect it using the debtor’s collateral.
Using a bank guarantee: The bank can cover the debt if a bank guarantee is issued.
Advantages: This method will allow you to return the money without going to court.
Disadvantages: Obtaining collateral or guarantees is not always possible if they are not provided for in the contract.
Method 6. Using Penalties and Fines
The contract may stipulate the possibility of charging penalties or fines for late payment. If this is provided, the company can:
Accumulate penalties: This can serve as an additional incentive for the debtor to pay off the debt.
Use fines: If the debt has not been paid, fines can be imposed for violating the terms of the contract.
Advantages: Increases in debt can motivate the debtor to repay the debt faster.
Disadvantages: This can be an additional burden for debtors, who may begin to avoid communicating with the company.
Method 7. Using Electronic Platforms and Auctions
Some countries have platforms and auctions where you can sell debt. These tools provide an opportunity to sell the debt to a third party. If debt obligations are too difficult to repay, you can sell the debt to specialized investors or organizations.
Advantages: This method allows you to get rid of debt quickly.
Disadvantages: The company can sell the debt at a large discount, leading to losses.
Method 8. Transferring Accounts Receivable to Government Agencies
This method is used when the creditor company has arrears in contributions to the Social Security Fund, taxes, and customs payments.
Information about debtors and accounts receivable amounts is transferred, respectively, to the Social Security Fund branch, the tax inspectorate at the place of registration, and the territorial customs office. These government agencies collect payment amounts from debtors uncontested.
Advantages: The method allows you to fulfil government obligations at the expense of debtors; no financial investments are required.
Disadvantages: Complicates business relations with debtors, which can affect business.
The effectiveness of working with accounts receivable depends on the correct choice of collection strategy and its timely application. It is also important to consider legislative aspects and minimize risks to maintain business relations with clients. A competent approach to debt collection allows not only the return of funds but also helps to strengthen the company’s reputation and increase its stability in the market.
In conclusion, working with accounts receivable is key to financial management and maintaining business stability. The methods considered for collecting debts on accounts receivable allow companies to choose the most suitable option depending on the complexity and volume of debt. Together with our experienced specialists, accountants, lawyers, and attorneys, you can choose the right and suitable method for collecting debts. We can represent your interests at every stage of work with accounts receivable, including in government agencies.
Contact us
If you have any questions or disputes regarding the debt collection process in Belarus, we will be happy to help! Our long-term experience in divident payment will help you resolve any disputes in this area.
- +37529142-27-19 (WhatsApp, Viber, Telegram);
- info@ambylegal.by.
