Incurring debt in business activities is normal for businesses. However, for many different reasons, debtors often want to extend the debt to get the greatest benefit. In this article, TNTP’s lawyer will give an opinion on the reasons why the business does not want to settle overdue debts with its partners.
1. The debt is unclear and disputes are likely to arise
The most important thing in the debt collection process is to accurately determine the amount of debt that needs to be recovered. When the debt amount has not been clearly identified by the parties, it will be a reasonable reason for the debtor not to make payment. The debt amount needs to be determined specifically and in detail by the parties in the contract and must be expressed in specific documents such as invoices, payment requests, and most importantly the debt reconciliation records to show consensus in determining the final amount of the debt.
In TNTP’s opinion, the debtor’s unwillingness to pay when the parties have not agreed on the value of the debt is common and is also a fair reason that creditors need to pay attention to. Although the creditor is the party with the right to request payment, it needs to be expressed clearly and with grounds to avoid abusing his or her rights to force the debtor to pay the amount that exceeds the amount of the debt.
The fact that the debt amount is not clearly determined by the parties can cause a debt recovery case to become a business dispute. At that time, other issues related to the contract can also become the subject of disputes such as the delivery of goods, issuance of invoices, and the performance of the parties in accordance with the agreement and the law. This will cause many other complicated problems in debt collection, affecting the quality of debt collection and even the business operations of the enterprise.
2. The debtor tries to appropriate capital
Many businesses with weak financial capacity have temporarily used amounts payable to creditors for their business activities, or they have temporarily used the value of a debt to “set-off” other debt with higher priority and continue to delay payment for as long as possible to continue to rotate capital. When a business can prolong debt payment, it will appropriate a lot of capital with lower interest rates than mobilizing capital through banks.
This is one of the main reasons why many businesses, despite having the condition and ability to pay but not repay their debt, because compared to completely paying off the debt, the longer the appropriation of capital will help the business maintain its viability and maintain a stable amount of capital with little disturbance. In addition, appropriation of capital can also be considered a form of unfair competition when the debtor’s failure to repay the debt on time will cause creditors to lose their capital to carry out business activities. Especially, the debts with large amount may cause the creditor to fail to achieve its business goals, affecting the creditor’s operation.
Therefore, as soon as it is determined that the debtor has appropriated capital, the creditor needs to quickly implement necessary debt recovery to protect both their rights and their capital.
3. The debtor has low revenue or is no longer able to operate
There are many reasons why debtors with low revenue are no longer able to pay, such as bad business decisions, market difficulties, or changes in the law. This is a situation that no creditor wants to happen to their debtors, but in reality, most of the difficult-to-recover debts on the market belong to the group of debtors that are no longer able to pay and are no longer operating. When the debtor is no longer able to operate or make a profit, paying off the debt becomes almost impossible.
The only solution for creditors is to regularly check and collect debts as soon as possible before the debtors fall into a “dying state”. The debtor’s insolvency status will likely put an end to all debt collection efforts.
Above is an article by lawyer TNTP on the topic: ” Why does the business not want to settle overdue debts with its partners?” Hopefully, this article brings value to readers.
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