A newly established business will face numerous concerns such as maintaining financial stability, establishing its brand and reputation, creating competitive value, and most importantly, being profitable during its operations. However, one aspect that new businesses also need to focus on is ensuring effective Debt recovery during their operations to maintain business stability. In the following article, a lawyer from TNTP will share opinions and insights on debt recovery experiences for newly established businesses.
1. Why is Debt Recovery Important for New Businesses?
Typically, new businesses concentrate entirely on the goal of seeking profit. While this is an obvious objective, they also need to control their debts and prepare debt recovery measures to avoid incurring irrecoverable debts beyond their control.
Often, the initial success of businesses in signing contracts with clients can lead to complacency and a lack of preparation for situations where clients fail to pay on time. When a business is new and has few clients, there is a tendency to retain existing clients and avoid demanding payment of debts to prevent displeasing them, which could affect future revenue. However, these loyal clients can potentially become bad debtors with large unpaid debts, disrupting the company’s finances and even severely affecting its operations. Without preparation for debt recovery activities, businesses can become passive and struggle to recover debts. For new businesses without strong financial capabilities, controlling debts is as crucial as seeking profit.
2. Considerations for New Businesses in Debt Recovery
a) Classify Debts Early On
Classifying debts is the first step a business should take before implementing debt recovery measures, as it helps manage debts more easily than lumping all debts into one category. Without classifying debts, planning and executing debt recovery tasks become inefficient since each debt requires a different approach, methods, and timelines.
Debt classification can be based on several factors, with the most important being the value of the debt and the time it was incurred, which greatly determine how easy or difficult it is to recover a debt. Early debt classification helps businesses monitor debts from their inception, allowing them to be proactive and ready for any necessary debt recovery stage to ensure effective recovery.
b) Focus on Early Debt Recovery, Even for Small Debts
Businesses often overlook small debts to avoid displeasing clients. However, based on TNTP’s experience, large irrecoverable debts often arise from failing to recover when debts are small and more manageable. Early debt recovery, even for small amounts, is also a way to test the debtor’s willingness to pay, as a debtor unable to settle small and manageable debts is unlikely to pay when the debt value increases.
Starting debt recovery early also helps businesses minimize the risk of irrecoverable bad debts. According to TNTP’s debt recovery experience, a debt is most likely recoverable within 12 months of its occurrence. Therefore, within this period, businesses should start implementing debt recovery measures to ensure effective recovery and prevent the risk of debts becoming irrecoverable.
c) Use Only Legal Debt Recovery Methods
Currently, many services “advertise” high success rates in debt recovery within a short period by applying methods that can pressure debtors to pay. Some debt recovery companies may use illegal methods, such as editing and posting threatening debt recovery videos on social media, exerting psychological and emotional pressure on debtors. Even worse, some debt collectors use physical force and gangsters to intimidate or threaten debtors. These are illegal acts, and those using such methods can be criminally charged under the Criminal Code.
Therefore, when implementing debt recovery measures, businesses should only conduct activities permitted by law to avoid legal risks that could affect both the business operations and the business owner themselves.
Above is an article by a TNTP lawyer on the topic: “Debt Recovery Experience for Newly Established Businesses.” We hope this article brings value to our readers.