Debt recovery activities are as crucial for businesses as their other business operations. To manage and handle debts effectively, businesses and organizations need to have an efficient debt management policy. In the following article, a lawyer from TNTP will discuss the reasons why businesses need a debt management policy.
1. Helps Businesses Effectively Classify Debts
For businesses to manage debts effectively, the first thing is to classify the debts, which is the first and foremost content of every debt management policy. Debt classification can be based on various criteria such as the value of the debt, duration of the debt, the relationship level between the business and the partner, or the ease or difficulty of debt recovery.
Debt classification serves two main purposes for the business: (i) to determine whether the possibility of debt recovery is high or low, and (ii) to help identify the necessary debt recovery measures for each debt. Therefore, a debt management policy will help businesses classify debts effectively.
2. Creates an Effective Debt Recovery Process
An important reason for businesses to have a debt management policy is to establish a convenient and unified internal procedure for debt recovery, enabling businesses to handle debts quickly, effectively, and in a synchronized manner with all the business’s debts.
A debt recovery process needs to be applied to all debts, and the steps involved must be consistent with a specific order, such as the stages of debt recovery from low to high: Reminder – Negotiation – Payment Request – Litigation. Thus, a debt management policy will prescribe that every business debt must be processed in the above order until the debt is fully recovered or the recovery process must be stopped due to ineffectiveness.
Therefore, a debt management policy helps businesses establish an effective debt recovery process and simultaneously enhances the business’s debt recovery experience.
3. Defines Functions and Tasks of Specialized Departments in Debt Recovery
Besides the above benefits, a debt management policy helps businesses maximize their debt recovery capabilities. The policy will assign functions to each department, division, and position in the business to serve specific debt recovery tasks. This helps the entire business focus its capabilities to support debt recovery activities, even for departments or positions not entirely dedicated to debt recovery functions, contributing to the overall debt recovery efficiency.
For example: (i) The sales department, as the customer and partner interface, will coordinate with the administrative and accounting departments to classify debts; (ii) After classification, the accounting department will inventory the debt value to discuss with the sales or debt recovery department to determine the exact amount the debt recovery department requires the debtor to pay. (iii) In cases of reconciliation, verifying debts with the debtor, the debt recovery department will also coordinate with the accounting department to prepare these documents and send them to the responsible directors for signing or stamping (if necessary); (iv) In cases where negotiation with the debtor is not possible, the debt recovery department will also coordinate with the administrative and accounting departments to prepare a list of lawsuit files, and some documents will also require signatures from authorized persons of the business to ensure legal validity.
Thus, a debt management policy will help the business define and assign functions and tasks for each stage and task of debt recovery to coordinate smoothly between departments within the business, maximizing debt recovery capabilities.
4. Establishes Debt Recovery Principles Compliant with Legal Regulations and in Line with Business Policies and Bylaws
Any business activity must comply with the law, and debt recovery is no exception. Many debt recovery activities may bring value to the business, but if they are not legally compliant, they can lead to potential legal risks, significantly affecting the reputation and business operations of the business itself.
Therefore, the debt recovery policy will set specific conditions so that debt recovery activities are in line with the business’s characteristics, internal rules, and bylaws, without affecting other business activities or causing difficulties, overlapping rights, and obligations of positions and roles within the business.
This is very important for businesses to ensure effective debt recovery while ensuring that business operations and other activities compatible with the business’s functions operate smoothly and are not interrupted when the business implements debt recovery.
Above is the TNTP lawyer’s analysis on the topic: “Reasons Why Businesses Need a Debt Management Policy”. We hope this article brings value to the activities of businesses.