In order to maintain a stable cash flow in business operations and minimize risks, businesses need to have an effective mechanism to control existing and potential future debts. In this article, TNTP lawyers will provide businesses with perspectives on the importance of debt control in business operations.
1. What is debt control?
According to the Vietnamese dictionary, “control” is the act of placing an object or phenomenon within the scope of authority of a certain subject, or to detect and prevent anything contrary to regulations within a certain scope.
From a legal perspective, control in state and government agencies is expressed in two main stages: “supervision” and “inspection”. Accordingly, “supervision” is to monitor the activities of a certain entity during its operation to ensure compliance with the law, while “inspection” is an external review of the activities of a certain entity to detect and prevent violations of the law.
From the above content, TNTP believes that debt control in business operations is a system of tasks aimed at ensuring that businesses can always monitor their debt, including debts that are arising and will arise so that appropriate plans can be made to handle debts, and to avoid neglect or causing debts to fall into a state that is difficult to collect.
2. What to do to control debt?
To control debt, businesses need to do 03 specific things as follows:
a) Summarize and classify debt
Before being able to control debt, businesses need to know the whole picture of their debt situation. Debts need to be recorded and classified based on different factors, such as: Debt value; Time of debt occurrence; Relationship with the partner; Financial capacity of the partner, etc… to facilitate debt control.
Businesses can choose appropriate criteria to classify different debt depending on their goals. This classification is especially necessary for businesses to be able to take appropriate measures to recover the debt later to optimize their financial and human resources.
b) Develop a control plan appropriate to each debt
With any business activity, businesses need to have a plan to control their debts with their partners. Although the ultimate goal of debt control is to collect these debts, not all debts can be collected effectively with the same method.
Businesses can base on the financial capacity of the debtor to determine the limit for the value of the debt that the business can incur. This is intended to create a safety line for businesses to promptly prepare for the scenario of a financial deficit for not being able to maintain a stable cash flow due to rising debts.
After determining its tolerance limit, businesses need to set a debt collection target that is consistent with their business strategy. Normally, according to TNTP’s experience, businesses need to focus on debt collection in the following order of priority: Debt value > Time of debt occurrence > Importance of the partner > Attitude of the debtor.
After completing the debt control plan, the businesses will begin to carry out appropriate work to control and collect appropriate debt.
c) Conduct appropriate work
As mentioned above, the ultimate goal of debt control is to collect debts to ensure financial flow and protect the business’s results. The specific tasks that need to be performed include:
Negotiation: The business assigns relevant departments to discuss and contact the debtor to request payment. Since this is the first step, priority should be given to reminding the debtor about payment instead of causing unnecessary pressure.
Requesting payment: After the business has implemented debt reminders through negotiation but without results, it can proceed to request official payment through working sessions, email exchanges, or documents. At this stage, the business needs to apply appropriate pressure so that the debtor does not delay payment any further. The pressure can be the announcement that it will initiate a lawsuit if the exchange between the two parties does not bring results.
Lawsuit: This is the last resort when the above steps do not yield results. At that time, the businesses need to submit a petition and related documents to the competent authority to resolve the dispute, including the Court or the Commercial Arbitration Center in accordance with the agreement between the parties. At that time, the competent authorities will, on behalf of the state power to carry out coercive measures to force the debtor to pay the debt.
Above is an article by TNTP lawyer on the topic: Control debt in business operations. Hopefully this article will bring value to our readers.
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