The business activities of enterprises, as well as organizations, always require unified and clear management to achieve the set business goals. However, there is a crucial activity within business operations that also needs attention, namely, managing debt. In this article, TNTP’s lawyers will provide insights into the significance of debt management activities and share experiences in managing debt within enterprises.
1. What is managing debt?
Management is the operation of directing, guiding, and overseeing activities to achieve predetermined goals. Similarly, in this context, debt management involves defining the goals of debt recovery and planning and managing the debt recovery activities of the enterprise to ensure its interests.
Many perspectives suggest that debt management and general management share similarities. However, debt management is just one phase of overall debt management because the entire debt management process extends from planning, directing, assigning, and overseeing debts in a unified and clear manner to achieve the established goals. In other words, debt management activities are necessary and equally important compared to the business management of the enterprise, both aiming to maintain profitability, cash flow, and stability in the enterprise’s operations.
2. Managing Debt Steps
a) Establishing Objectives
The clear and most important objective of debt management is to control, and limit bad debts, and ensure the efficient recovery of debts for the enterprise. Any outstanding debt becomes a financial burden for the business without proper organization, arrangement, and defined objectives for handling it effectively.
While the primary goal of debt recovery is to compel the debtor to make payments, there are also other equally important objectives, such as maintaining relationships with debtors to ensure ongoing operations even when debts arise. In such cases, the enterprise needs to classify debts based on different criteria to implement debt recovery according to the various objectives of the debt management process.
b) Debt Classification
As mentioned earlier, not all debts of the enterprise need to be rapidly recovered, as some debtors may be long-term partners or strategic allies. In such cases, maintaining and developing existing relationships with these debtors may be more important than swiftly recovering debts, which could lead to strained relationships. Therefore, for effective debt management, enterprises need to classify debts with specific objectives. For example, debtors with long outstanding debts and uncooperative payment history may be classified as bad debts. The objective for this group would be to recover debts through legally permissible means efficiently. On the other hand, debtors with whom the enterprise continues to engage in business, and the debts from this group represent an insignificant proportion compared to the profits generated, can be classified as noteworthy debts. In such cases, the enterprise may engage in discussions and negotiations to recover debts to maintain the relationship and serve as a “reminder” for debt payment.
c) Managing Debt Recovery Operations
Similar to any other business activity, debt recovery operations also need to be managed to ensure that all tasks are carried out reasonably, and legally, and bring the best benefits to the enterprise. Management is reflected in directing, organizing tasks, assigning responsibilities, and overseeing debt recovery activities to align with the established objectives. Without effective management, the debt recovery operations of the enterprise will be challenging to execute as the progress of the case and the tasks performed in debt recovery cannot be monitored. This can result in an inadequate quality of debt recovery, leading to the wastage of labor and financial resources of the enterprise without achieving the intended goals. Therefore, managing debt recovery operations is a crucial element of debt management.
The above is the article by TNTP’s lawyers on the topic: ” Experiences for managing debt within a business.” It is hoped that this article will provide value to the activities of businesses.
Best Regard.
