Delays in payments are inevitable and the company must be prepared for three situations:
- The debtor is a good business partner but defers the payment due to financial problems;
- The debtor is a good business partner but expects significant deferral of the payment;
- The debtor has bad intentions and does not plan to pay for the ordered goods.
Even if the company uses assistance of the specialists in management of the financial liquidity, there are some important areas that it should take care about, since they constitute the basis for pursuing of its rights. Establishment of cooperation with a debt collection company or a factoring company is sometimes the beginning of ordering of the internal procedures connected with finance control. What is important then?
Check what you know about the business partner.
Does the company have financial problems? How do its business partners assess it? What financial data has it presented? Does it indicate problems with acquisition of money from the debtors? And maybe it indicates shady practices? In what industry does our business partner operate? Is it an industry, in which there are usually long periods of waiting for the payment (e.g. construction industry)? The behaviour of the debtor may be anticipated. Unfortunately, a lot of companies do not make this effort and conclude agreements in a practically blind way.
Take care about precise agreement and look after documentation
A commercial agreement is the basis for pursuing of the rights and securing of the transaction. It should precisely determine the subject of the agreement and payment conditions – its term, form and consequences of a failure to make it. A good agreement contains templates of orders, VAT invoices, documents confirming receipt of the goods and other. Thus, it allows for avoidance of a lot of disputes in the future.
Monitor your receivables
A lot of debt accrues due to negligence at the side of the creditors. It is visible in smaller companies where often there are no persons responsible for monitoring of invoices, payment terms and documentation. If the company fails to ask for what is due to it, the debtor will eagerly use it.
Published on: 24 October 2016