One of the important factors determining the success of debt collection is the time of the debt’s occurrence. If a debt has a short occurrence time, it will have a higher chance of being collected than a debt that has been outstanding for a long time. In this article, TNTP’s lawyer will analyze how the longer the time of the debt’s occurrence, the more it will affect the debt recovery.
1. A debt is considered to have occurred for a long time
In the debt collection process, the “golden” time for businesses to collect debts is from the time the debt arises, which is from 1 to 3 months. At that time, the debt collection process will be simplified because the debtor usually has not encountered any issues in their business operations, or any issues that have arisen can be easily detected to take necessary measures. Moreover, since the debt is still new, the reconciliation and confirmation of debts between parties will be straightforward because the accounting records have not been stagnant for too long, leading to difficulty in tracking and verifying the debt.
On the other hand, the period for a debt to be considered long is usually 12 months or more from the time of occurrence. The reason is that when the business has “forgotten” about the debtor during this period, it will not be able to determine its ability to operate, its ability to repay the debt, and even whether the debtor is still operating or not. During this period, the business also usually carries out annual tax reporting and then imports documents related to the debt. Therefore, verifying the debt takes a lot of time and is difficult to track.
2. The effects of allowing debt to accrue for too long
a) The debtor may no longer have the ability to pay
As mentioned above, a debt that has been outstanding for too long will make it difficult to recover the debt. A period of 12 months or more creates conditions for the debtor to avoid payment because they were not regularly reminded by the creditor beforehand. While debtors typically want to use the capital for as long as possible to create a business advantage and protect their cash flow.
In addition, allowing debt to accrue for too long can lead to the discovery that the debtor no longer can pay. Debtors who accrue many large debts at once but are unable to pay will often try to extend the debt or even “run away”. At that point, the creditor will no longer be able to recover the debt or will need to spend a lot of time, effort, or cost to recover it.
b) Difficulties in the process of litigation
In addition, in cases where the enterprise considers suing the debtor for a debt that has been outstanding for too long, the time limit for filing a lawsuit according to the provisions of the Civil Procedure Code may have expired. In that case, the enterprise’s rights will not be guaranteed, and even if there is a court decision, the enforcement phase may be very difficult and lengthy.
c) Checking and reviewing old documents takes a lot of time and leads to incomplete and inaccurate identification of the debt
Important documents when the enterprise is collecting debts include Contracts, Delivery Receipts, Invoices, and most importantly, a Confirmation of Accounts Receivable reconciliation signed by both parties. These documents are the clearest legal basis for proving the obligation to pay and accurately determining the amount the debtor must pay.
During 12 months or more, after completing the annual tax report, the enterprise tends to store these documents in the enterprise’s data warehouse. In case they need to be used for debt collection, reviewing these old documents will take a lot of time and affect the debt recovery process. If the enterprise does not store these documents completely, the important documents will be lost, making it very difficult to recover the debt when there is insufficient evidence to request payment from the debtor or accurately determine the amount the debtor owes.
Moreover, if the enterprise proceeds to sue the debtor in foreign courts, it will be more difficult to access the original documents and evidence, making it more difficult to win the case.
It can be seen that allowing debts to remain outstanding for too long will have a negative impact on the debt recovery process of businesses. Therefore, to ensure effective debt recovery, businesses need to take necessary debt recovery measures as early as possible when debts are incurred. The above is an article on ” How does the longer the debt period affect the debt collection?” by TNTP lawyer. We hope this article is helpful in the operation of businesses.