Sale of the debt is a method for unconditional disposal of the problem – it becomes the worry of the one that has acquired it. The problem consists in the fact that the price of the debt does not result only from its amount. It is also important when the company decides to sell it. The most common reason, for which the company may want to dispose of the receivable, is its difficult financial situation.
We know that the receivables that may be sold are the payable and non-payable ones (i.e. with exceeded payment term or not) as well as the indisputable ones. The most common reason, for which the company may want to dispose of the receivable, is its difficult financial situation. Sale of the debt is quick and the company obtains the money right away. On a routine basis, debt happens to be sold also at the end of the settlement period in order to improve the balance sheet structure and the liquidity ratios.
In practice, sale of the debt is also an ultimate step, similarly to court proceedings. The companies linger, try to recover the money on their own and they think about the sale when the prescription of the debt approaches unavoidably. They forget about the fact that the more time passes from the payment term of the receivable, the more difficult the recovery of the money is. In practice it means that the acquirer of the debt will not give such a good price for it. Other solutions also stop being so attractive – debt collection is cheaper but lasts longer. A loan also costs. Even though there is rarely a situation without any solution, it is worth analysing the situation before occurrence of such problems. So when to sell the debt in order not to lose finally?
The answer to this question is simple: when the procedure being in force in the company indicates it. The thing that the majority of us need is organisation. Debt must be monitored, documentation must be watched. The terms, after which the case is referred to the debt collection company, must be clearly determined. The circumstances leading to the company selling the debt to the debt collector that has much more time and resources for recovery of the debt must be determined in the same way.
What terms should they be? One month? Two months? Maybe three months? It depends on the industry, in which the company operates, since other rules are applicable to the construction companies, where it is necessary to wait for the money for months, and other are applicable to pharmacies, where money is on the account immediately.
One thing is certain – we should control the debt according to clear rules. Both for ourselves and for our business partners.
Published on: 11 February 2016