Although debt collection in the construction industry is vitally important and significantly impacts the cash flow of businesses and organizations as well as individuals across all sectors of society, many businesses still struggle to carry out debt collection effectively. One of the primary reasons for low debt collection rates is the inability to determine favorable and difficult debt collection timing. In this article, TNTP’s legal team will provide insights into what constitutes a difficult debt collection timing in the construction industry.
1. What Is Debt in the Construction Industry?
The construction industry encompasses various related and interconnected sectors, including raw materials, architecture, structural engineering, real estate, land administration, and more. Consequently, debts arising within the construction sector are diverse and complex. However, TNTP will specifically address debts arising during the execution of commercial real estate projects—a common source of difficult debt collection.
Determining what constitutes a difficult debt collection timing depends on various factors, including the role of the debtor in contract execution, the amount of the debt, the financial capabilities of the debtor, and more. TNTP will provide its perspective on defining difficult debt collection timing below.
2. Difficult times when debt collection in the construction industry
A debt is considered difficult to collect when the period from the inception of the debt to the commencement of the recovery process exceeds 12 months. During this time, businesses may miss the opportune moment to implement preventive measures or initiate debt collection for the following reasons:
a) Debtor’s Inability to Pay
One of the primary reasons why a debt becomes difficult to recover when it has been outstanding for an extended period is that the debtor may no longer have the financial capacity to make payments. While a 12-month timeframe may not seem excessively long, unforeseen events can lead to the debtor’s financial inability to operate effectively, or even result in bankruptcy or dissolution. In such cases, businesses have limited options for debt collection, other than resorting to legal proceedings through dispute resolution authorities if the debtor is unwilling to pay voluntarily. Even if dispute resolution authorities issue legally binding judgments or decisions that require the debtor to make payments, the business can only recover the debt if the debtor still possesses funds or assets. If the debt collection process is initiated too late, the debtor’s assets may no longer be available, and the business may not be able to recover any funds.
b) Document Compilation Takes Time
When a debt remains unpaid for an extended period, it becomes difficult for a business to demand payment due to the time-consuming process of compiling necessary documents. These debt-related documents may include invoices, payment requests, and debt reconciliation between the business and the debtor. Based on TNTP’s practical experience, these documents are often stored by the accounting or clerical departments of businesses for future operational years. The prolonged storage of documents can lead to their loss or poor preservation conditions, potentially resulting in damage. This is not to mention that staff turnover or departures within the business can make it difficult to ensure proper document retention, given that the debt may have originated a long time ago.
Furthermore, if a business decides to initiate legal proceedings against the debtor through relevant dispute resolution authorities but fails to provide the necessary documents to substantiate the claim, it can significantly jeopardize the business’s interests. In some cases, these dispute resolution authorities may reject the initiation request due to the business’s inability to provide the required documents and evidence to support the debt collection claim.
Therefore, it is evident that the time-consuming process of document compilation can hinder a business from taking effective debt collection measures, ultimately jeopardizing its legal rights and interests.
The above is an article by TNTP’s lawyers on the topic of ” Difficult times when debt collection in the construction industry” We hope this article provides value to our readers.