In cases where debts arise from contracts or transactions during business operations, the business has the right to request payment. However, extending the payment deadline for these debts can bring long-term benefits to both the business and the indebted partners. In the following article, TNTP’s lawyers will provide insights into the question of whether to agree to extend payment deadlines for partners or not.
The decision to accept payment deadline extensions for partners depends on various factors, including: (i) the financial capability of the business, (ii) whether the indebted partners have a long-term interest in the business, and (iii) whether the indebted partners are facing financial difficulties but have the potential for recovery. Specifically:
1. Strong Financial Capability of the Business
If the business’s financial capacity is currently strong, and the accumulation of these debts does not significantly impact the company’s cash flow, the business can allocate its resources to build, strengthen, and develop its profit-generating capabilities instead of immediately pursuing debt collection. In this case, extending payment deadlines with indebted partners can also be a way to support and maintain relationships with these partners.
However, businesses should note that extending payment deadlines does not mean neglecting debt monitoring. In cases where the debtor still does not make payments even after the extended deadline, the business must take necessary measures to ensure debt recovery.
2. Partners with Long-Term Interests in the Business
In many cases, although partners may have outstanding debts, the strong bonds and long-term interests they share with the business may lead the business to consider extending payment deadlines for these partners. Extending payment deadlines depends on the partner’s value and their long-term benefits to the business, as well as the partner’s ability to make payments. However, in many cases, if the partner is no longer able to continue their business operations, extending the debt may become a double-edged sword. It could potentially cause the business to miss the opportune time for recovering newly accrued debts, and these debts may turn into bad debts after the extended period.
If the indebted partner can bring greater benefits to the business than the value of the debt itself, extending payment deadlines can be a very effective form of support when partners face financial difficulties. In cases where indebted partners can recover their production capacity and fulfill their debt payments within an extended period, the relationship between the business and the partner is likely to be enhanced.
3. Partners Facing Financial Difficulties but with Potential for Recovery
Usually, when partners actively request an extension of payment deadlines, it may be because they are currently facing certain financial challenges in their operations. In such cases, the business may consider extending the payment deadline if it is aware that the partner is genuinely experiencing financial difficulties and is unable to make an immediate payment. In this situation, the business can accept postponing the payment deadline to a suitable timeframe during which the partner can stabilize their financial capacity as a form of support.
However, to protect its interests, the business should limit the maximum extension of the payment deadline to three months to ensure debt recovery capability. Additionally, when the business agrees to an extension, certain constraints should be imposed on the debtor, such as requiring them to sign a debt reconciliation report or provide a reasonable written payment plan. These measures ensure that the partner will fulfill their obligations after the business has provided them with the opportunity, as in many cases, partners who continue to show no willingness to pay after an extension can negatively impact the business’s interests. In such cases, these safeguard measures will secure the business’s interests and make it easier for the business to proceed with subsequent legal measures for debt recovery.
The above is an article by TNTP lawyers on the topic: “Should we agree to extend payment deadlines for our partners or not?” We hope that this article brings value to businesses.