Business - Debt Recovery

Sometimes, businesses resort to offering credits to their clients in order to give their clients extra convenience and to increase sales. However, at times, businesses suffer from recovering bad debts. In order to minimize, if not avoid the chances of incurring bad debts, it is best to follow these simple rules.

Avoiding Bad Debts

First, make sure that you carry out a credit check on your new clients. This may include your client's personal and business details, commercial credit check, or credit references or guarantors. Also, make sure that you explain the credit conditions and policy clearly to avoid any misinterpretation. You can also either collect a deposit or request progress payments before making a deal to minimize the possibility of bad debts.

Second, make a record of your all your debtors. Take note of any unpaid or late payments and try to apply an organised practice of collecting debts (i.e. call them, visit them, or mail a courteous reminder letter).

Third, if these tactics did not work for you and you hope to retrieve these debts, you can employ any of these three methods: Consultation, Letter of Demand, or Legal Proceedings. However, it is best that you choose the right method in recovering the debts.

Methods of Recovery

Consultation
Contact the company or the person who loaned from you and try to settle a payment date.

Letter of Demand
If consultation does not work, you may send a letter of demand. You may also opt to write a less formal letter of demand. The letter will request that the debtor will pay the balance by a scheduled date. It should also include the details of the debt and a warning that if the person will not pay by the scheduled date, you will resort to legal action. However, you should first evaluate the risks of resorting to legal actions as it will entail additional costs.

In case you are attempting to recover a balance from a company, you may also issue a statutory demand. A statutory demand is a more formal version of the letter of demand. It indicates that you will resort to legal proceeding if the balance is not paid after 21 days.

Legal Proceedings
If the debtor still does not reply to your formal request, you should resort to legal action. However, you should also consider the cost that you will incur before resorting to legal action.

After applying for a legal proceeding, your debtor will receive a letter informing that you filed for court assistance. It will also require that the balance due be paid by a certain time. The debtor may ignore the summon (if the debtor does not reply within 28 days, a default judgment will be carried out. In this case, the Court will favor your side without reaching the Court), file a confession of debt (the debtor will ask if he could pay the debt by installments, though the Registrar of the Court will still have to accept the proposal. If the proposal is rejected, a hearing will be conducted to decide how the debtor should pay), or file a defence to the debt (an application for a counter-defense if the debtor believes that he does not loaned the money or does not agree with the balance due).