Although businesses have different goals and industries, their common purpose is to seek profits and generate income. One of the main reasons that can lead to cash flow deficits and reduced profits is the occurrence of difficult-to-collect bad debts. In this article, TNTP lawyers will provide advice on how businesses can prevent the occurrence of debts in the future.

1. Classifying and managing potential debts

One of the first things that businesses need to pay attention to avoid future debt is to assess, classify, and manage potential debts that have already occurred or may occur from partners. Classification can be based on various criteria, but the most fundamental ones are the Time of Debt Occurrence and the Value of the Debt.

The time of debt occurrence greatly affects the success of the debt recovery process because debtors tend to evade debts that have been outstanding for a long time without being reminded by the creditor. The longer the debt has been outstanding, the more difficult it becomes to recover, partly because debtors prioritize payments to creditors who exert the most pressure on them.

Regarding the value of the debt, businesses should prioritize the recovery of larger debts because the time required to recover the full amount of these debts will be prolonged, and to avoid situations where debtors become unable to pay, resulting in larger financial losses for the business. For smaller debts, businesses can consider sending reminders and notices before taking recovery measures to exert pressure.

Once a necessary list of debtors and their priority levels is established, businesses can easily make decisions regarding the debt recovery process and prevent any omissions or miscalculations of debts before proceeding with the necessary legal measures. The classification and management of potential debts are crucial stages for businesses to limit the occurrence of debts in the future and to prepare for the debt recovery process for inevitable debts.

2. Conduct regular payment requests and debt reconciliation

Before a regular debt turns into a bad debt, businesses need to regularly remind debtors to make payments. Regular contact and reminders will help businesses closely monitor the payment process of debtors. In case debtors encounter issues or difficulties in making payments, the business can be aware and prepare appropriate debt recovery measures.

In addition to urging and reminding, if possible, businesses can request debtors to sign a confirmation on the debt reconciliation statement. This will help the business closely monitor the payment process and the value of the debt. Furthermore, the debt reconciliation statement holds significant value in proving the business’s claims if the business decides to take legal action against the debtor at the authorized dispute resolution agency. With clear and authentic evidence from the debtor, the dispute resolution agencies will have sufficient grounds to consider accepting the business’s lawsuit request.

3. Utilize professional consulting services

Many businesses believe that professional debt recovery companies such as law firms only have experience in dispute resolution and debt collection. However, in reality, law firms also provide regular legal advisory services to help businesses mitigate risks during their operations, including providing advice on preventing bad debt risks.

The preventive advisory services for bad debt risks are carried out by experienced lawyers and legal experts who can identify potential risks and bad debts in business activities. This service is often conducted through financial assessments of businesses, examining financial records to identify priority debts for recovery, and reviewing important documents to ensure preventive measures are in place and prepared for debt recovery if necessary.

Law firms with years of debt recovery experience can provide a more professional evaluation than the internal staff of businesses that may lack experience in debt collection operations. Therefore, they can enhance the ability to prevent the occurrence of bad debts in business activities.

The above is an article by TNTP Law Firm on the topic: “How businesses can avoid bad debt in the future” It is hoped that this article will provide useful knowledge for businesses in your operations.

Best Regard,