Debt Collection Period

Cash flow is the “vein” of every business. A successfully signed contract does not guarantee profit if the customer delays or fails to make payment. In the context of widespread late payments, managing the debt collection period – also known as Days Sales Outstanding (DSO) – becomes especially critical. In this article, TNTP’s lawyers will analyze the concept of DSO, the factors affecting debt collection time, solutions to optimize it, and relevant legal regulations to help businesses better control their debt.

1. What is the Debt Collection Period?

The Debt Collection Period (Days Sales Outstanding – DSO) is a financial index that indicates the average number of days a business takes to collect payment from customers after issuing an invoice. It is one of the key indicators in financial management, directly reflecting the effectiveness of a company’s credit policy and debt recovery process.

In practice, DSO plays a vital role in cash flow management. A low DSO means the business receives payments quickly, allowing it to reinvest, cover operating costs, and expand its operations, meanwhile a high DSO indicates prolonged delays in collecting receivables, increasing the risk of cash shortages and reliance on borrowed capital, which may lead to liquidity risks.

Beyond financial implications, DSO also reflects the relationship between a business and its customers. A reasonable DSO often indicates effective cooperation, mutual trust, and respect in commercial dealings. On the other hand, prolonged payment delays may signal poor customer quality or weaknesses in the company’s credit policy.

2. Factors affecting the Debt Collection Period

The debt collection period is not a fixed number – it depends on various specific factors in each case:

• Age of the debt: The longer a debt remains unpaid, the lower the likelihood of recovery. In practice, debts older than 180 days are often classified as “bad debt” and may require stronger legal measures to resolve.
• Value of the debt: The value of the debt directly affects the collection time. Smaller debts are generally easier to settle through simple agreements or collection measures. Larger debts often involve disputes over contract terms, product/service quality, or performance obligations, leading to prolonged negotiations or even litigation.
• Debtor: The nature of the debtor influences the complexity of the recovery process. If the debtor is an individual, the debt is typically consumer-related and may be resolved more quickly, though it carries the risk of insolvency due to unstable income. If the debtor is a business, the issue often involves contracts, payment terms, guarantees, or multiple stakeholders, making the process more time-consuming and complex.
• Documentation and evidence: Legal documentation is a critical foundation. If the creditor cannot provide complete contracts, invoices, delivery records, or reconciliation statements, the payment request may face obstacles. In such cases, the creditor or their authorized lawyer must collect and supplement the necessary documents and evidence to substantiate the claim, which can considerably prolong the debt collection timeline.
• Industry and business environment: Each sector – civil, commercial, labor, construction – has its own characteristics, leading to different debt collection processes in both legal procedures and business practices. This explains why the recovery time for a debt can vary greatly across industries.

From a legal and risk management perspective, identifying these influencing factors is essential for businesses to proactively develop credit policies, design effective debt collection processes, and select appropriate legal measures to protect their interests.

3. The Stages of Debt Collection

The debt collection process in a business typically unfolds through four main stages:

• Negotiation and Settlement: When a debt becomes overdue, the first step is usually to contact the debtor directly via phone calls, emails, official letters, or payment demand notices. The goal is to create an opportunity for both parties to discuss difficulties and explore feasible solutions such as dividing the debt, extending the payment period or applying a contractual penalty clause according to the agreement. This stage often helps reduce costs, maintain business relationships, and limit legal disputes.
• Litigation: If negotiations fail or the debtor deliberately delays payment, the creditor may initiate legal proceedings either directly or through authorized lawyers, law firms, or legal service providers. The case can be brought before a competent court or commercial arbitration center (if the contract includes an arbitration clause). This is a formal legal stage that requires well-prepared documentation and evidence, and strict compliance with procedural rules under the law.
• Judgment Enforcement: After the judgment, court decision or arbitral award becomes legally effective, and the debtor fails to voluntarily fulfill their obligations, the creditor has the right to request enforcement by the civil judgment enforcement agency. This process includes asset verification and the application of enforcement measures (asset seizure, freezing, auction, etc.) to ensure payment to the creditor. In practice, enforcement is often the most complex and time-consuming stage, depending on the debtor’s financial capacity and legal ownership of assets.

In summary, debt collection is a chain process – from flexible negotiation to formal enforcement – ranging from out-of-court settlements to compulsory legal measures. Businesses should proactively prepare appropriate solutions for each stage and seek support from legal professionals to optimize recovery outcomes and minimize legal risks.

4. Tips to shorten the Debt Collection Period

To optimize the DSO index and improve the efficiency of debt management, businesses can apply the following practical solutions:

• Establish a strict credit policy: Conduct thorough due diligence on the customer’s financial capacity and commercial reputation before signing contracts. Clearly define payment terms and include legal safeguards such as penalties for breaches or late payments to ensure strong legal enforceability.
• Be proactive in communication and reminders: Send polite but firm reminders before and after the payment due date. Timely and tactful communication helps prevent delays and discourages debtors from taking advantage of leniency.
• Applying technology to debt management: Use debt management software or ERP systems to track payment progress, identify upcoming due dates, and automate notifications. This not only shortens processing time but also enhances transparency and accuracy.
• Diversify payment methods: Offering multiple payment methods – such as bank transfers, credit cards, e-wallets, QR codes, etc. makes it more convenient for customers and reduces delays caused by technical or procedural issues.
• Cooperate with lawyers and legal professional unit: In cases involving disputes or signs of bad debt, authorizing reputable lawyers or legal service providers can save time and ensure legal compliance. This approach also strengthens the creditor’s position during negotiations.

In conclusion, effective debt collection depends not only on the firmness in the handling process, but more importantly, on thorough preparation from the beginning. Enterprises should synchronously combine credit policies, management tools, communication skills, and legal solutions to shorten collection time and ensure stable cash flow for business operations.

5. Legal framework in Vietnam

Statute of limitations for filing lawsuits: According to Article 429 of the Civil Code 2015, “The statute of limitations for initiating a lawsuit to request the court to resolve a contractual dispute is 3 years from the date the entitled person knows or should have known that their lawful rights and interests were infringed”. Therefore, the general statute of limitations for civil contract disputes is 3 years from the date the rights were violated.

In case the statute of limitations for filing a lawsuit has expired and the debtor requests to apply the statute of limitations at the competent dispute resolution agency, the creditor may only recover the principal debt.

Debt Collection Process at the Competent Court and Enforcement Agency:

• Preparing the petition documents (1 – 2 weeks): Enterprises collect contracts, appendices, payment records, invoices, delivery minutes, debt reminder letters, reconciliation statements, and other relevant documents. Preparation time depends on the complexity of the case.
• Filing the lawsuit (5 – 8 working days for review): The petition and documents are submitted to the competent People’s Court. Within 3 working days of receiving the petition, a chief justice assigns a judge to review it. Within 5 working days of assignment, the judge must review the lawsuit and proceed with case acceptance if no amendments are required and the case is under the jurisdiction of the court where the plaintiff filed the lawsuit (According to Article 191 of the Civil Procedure Code 2015, amended in 2025).
• Case acceptance – Preparation for first-instance trial (2 – 4 months): After the claimant submits the court fee receipt, the court issues a notice of case acceptance. The standard preparation period is 4 months, extendable by 2 months for complex cases. During this phase, the court collects evidence, takes statements, and organizes a meeting to review access to evidence and conduct conciliation (According to Article 203 of the Civil Procedure Code 2015, amended in 2025).
• First-instance trial (1 – 2 days): If conciliation fails, the case proceeds to trial. The first instance trial typically lasts 1 – 2 days, followed by the court’s judgment.
• Appeal and appellate trial (30 – 45 days): Within 15 days of the judgment, parties may file an appeal. The appellate court usually resolves the case within 2 – 3 months from the date of acceptance (According to Article 273 of the 2015 Civil Procedure Code, amended in 2025).
• Judgment enforcement (from 30 days onward): Once the judgment or decision becomes legally effective, the business may file an enforcement request within 5 years (According to Article 30 of the 2008 Law on Civil Judgment Enforcement, amended in 2025). If the debtor fails to comply voluntarily, the enforcement agency will apply coercive measures within 30 days of issuing the enforcement decision. In complex cases (asset disputes, seizure, auction, etc.), the process may take several months.

Organizations and individuals should note that: Debt collection services are prohibited under Point h, Clause 1, Article 6 of the Law on Investment 2020. Businesses may only recover debts through internal legal departments or by authorizing lawyers or law-practicing organizations.

6. Frequently Asked Questions (FAQs)

Should I hire a professional debt collection legal service provider?

Yes, but businesses should hire lawyers or law-practicing organizations. These professionals can shorten the debt recovery timeline, especially those specializing in providing legal services for debt collection. Moreover, hiring a professional debt collection unit will avoid legal risks related to debt collection activities that are prohibited under the Law on Investment 2020.

What if the debtor refuses to pay?

Businesses should initiate legal proceedings promptly to protect their lawful rights and avoid prolonged recovery periods.

Will debt collection damage business relationships?

If handled tactlessly, it may cause strain. However, when legal procedures are properly followed, business cooperation can still be maintained.

Is sending payment reminders effective?

Yes. It is a crucial legal step that creates pressure and demonstrates the creditor’s goodwill if the case proceeds to court. It also helps accelerate the debt collection process.

7. Professional Legal Services for Debt Collection in Vietnam

In the context of increasingly strict laws, the safest and most effective solution is to authorize lawyers or law-practicing organizations. They are experienced in:

Drafting and sending demand letters and warning notices.

Representing businesses during negotiations.

Filing lawsuits and participating in litigation at court or arbitration.

Requesting and supervising judgment enforcement.

The participation of lawyers not only shortens the debt collection timeline but also ensures transparency, legality, and minimizes risks for businesses.

The debt collection period is a key indicator of a company’s financial health and debt management capability. Understanding influencing factors, applying effective management solutions, and complying with legal regulations will help businesses shorten debt collection time, maintain stable cash flow, and reduce dispute risks. In the context of banned “debt collection services” in Vietnam, the optimal and lawful choice for businesses is to proactively manage debts or authorize lawyers or law-practicing organizations. This is a sustainable solution that protects legal rights while preserving business reputation and long-term relationships.

This article, “Debt Collection Period: Analysis & Optimization Guide” was prepared by TNTP’s lawyers. We hope the content proves useful to our valued readers.