Business Management of Debt and Debt Recovery

20/11/2019

by Ching Hei Cheung

In today’s financial markets, debt no longer the exception, it quickly became an ordinary facet of the norm. It is nevertheless essential that every organisation and individual understands how to manage debts and overdue loans effectively over time. 

There are, of course, myriad ways to manage your finances. Along with this comes the uprising of consumer debt. Regardless of how much debt you have accumulated, keeping up with payments and monitoring who and how much you owe is imperative. If you’re a business, collecting payments can be a time consuming task but one that is essential to your company’s cash flow. 

First Things First

The first step to managing any amount of debt is to closely monitor who and how much exactly you owe.

Make a list entailing the creditor, the total amount of the debt, monthly payment, and due date.

If you need more info, start by sending out a Letter to Supplier Requesting Credit Terms, or alternatively, a Letter to Customer Agreeing Credit Terms issued by the supplier. You can confirm the veracity of the debts that are on your list and ensure that you are up to date with all payments that are due. This will clear up any remaining ambiguities about your financial statement.

By seeking out all due-payments or fees and having them in front of you, you are able to visualise your finances with clarity. You’ll be able to see a complete debt picture and the progress of your personal finances at any given time. It is important to continue to intermittently return to your list of existing debts as opposed to merely creating it then failing to refer to it after you begin to manage your finances. Remember to refer to your debt list periodically, especially as you pay bills. Update your list continually in order to stay informed and maintain the progress made as the amount of your debt changes overtime. 

Late Payments

One of the reasons people typically fall into an increasing debt is because of late payments. These ultimately become harder to pay off over time as a result of a late fee for every payment missed. When a late payment is made or is still pending, the organisation or individual may choose to issue one of several types of documents requesting due payments. These include Payment Reminder Letters or Notice of Overdue Payment letters. If you’re a business owner, these are the letters you want to send out to collect late payments. 

These documents typically not only request the amount that is due, but also include a late payment fee, or a late charge issued to those who miss paying at least their minimum payment by the payment deadline with an increased interest rate.

In response to late payments, a well-drafted Apology for Late Payment Letter can go a long way towards generating good faith before you make a payment.  You may want to opt for a calendaring system on your computer or phone as a simple and convenient way of alerting you days in advance of your next payment.

If you miss a payment, pay it off as soon as possible, not at the next payment due date. By that time your late payment may have already been reported to the credit bureau. An Agreement For Paying Off In Instalments may also be an ideal solution to paying off debt and ensuring that the organisation you owe does not report or start charging an even higher interest amount. 

Debt Management

Debt management in the form of debt collection agencies operate as middle-men figures who collect customers’ outstanding debts and remit them back to the original creditor, whether that be an organisation or an individual. The creditor pays part of this amount, typically 25% to 45%, back to the debt collector who is capable of collecting debts of all types, for example, credit card debt, medical debt, automobile loan debt, personal loan debt, student loan debt, etc.

Debt collectors use letters which may consist of a document Giving Notice of Dishonour of a Cheque or reiterate an overdue invoice to contact delinquent borrowers and attempt to obtain the amount overdue.

In the case that the borrower cannot be reached via the contact information provided, debt collectors may utilise computer software and private investigators who can conduct various in-depth searches for a debtor’s assets, for example, a bank account, to determine a debtor’s ability to repay. Debts can, alternatively, be sold to debt buyers as a loss from the original creditor. This is done when creditors package together numerous accounts with similar features and sell them as a group through a bidding process whereby prices may fluctuate depending on the type of debt that it is. Thus, this form of debt recovery can be seen as advantageous to debt collection agencies if the original creditor deems the overdue amount old or not valid for collection.

Debt Settlement

One solution that serves as an advantageous asset of the business industry is the fact that, typically, prices and terms of an agreement are always negotiable. Debt settlement describes the process of a debtor offering a large, one time payment toward an existing balance in return for absolving the original debt. The nature of this method of recovery requires the debtor to obtain a substantial amount of cash at one time, so the debtor must also seriously consider the risks involved for a business making large payments in one go.  Alternatively, through negotiations, a creditor may issue a Letter Accepting Payments in Instalments as a form of debt settlement whereby a loan is repaid by the borrower in regular instalments including interest and a portion of the principal. 

Budget Planning

Building yourself a budget planner can significantly help you regulate your business spending. You can also ensure that you are paying off all of your expenses and avoid an increase in any overdue debt. Constructing a budget planner may seem like a daunting task, however, there are several components that will assist you in getting on the right track.

  1. Firstly, collect all your financial statements. Bank statements, investment accounts, receipts, and any other relevant information on income sources and expenses that will allow you to visualise where exactly you can attribute your spending.
  2. Next, make a list of your total monthly buisness income. By itemising and compartmentalising these expenses via a spending diary, you will find that it is easier to set realistic goals and budget limits to your business expenses.

Ultimately, managing and recovering from debt and overdue loans is no easy task and requires persistence, patience and perseverance. Using a repertoire of payment collection letters and debt payment agreements allows you to streamline your processes towards financial stability whether you’re collecting debt or paying it off. 

 

This article does not constitute legal advice.

The opinions expressed in the column above represent the author’s own.

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Ching Hei Cheung is a first-year law student and aspiring solicitor studying at the University of Bristol. She is involved in a myriad of extra-curricular activities such as debating team where she has obtained first place in a national competition judged by a panel of legal professionals from Baker McKenzie, commercial awareness society and pro-bono society, in order to refine existing skills in public speaking and negotiations, as well as develop a greater understanding of the commercial market that encapsulates the everyday workings of the legal sector. 

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