For Enterprises, debt collection is always a top concern because it not only directly affects the capital but also the financial plans and business activities of Enterprises. In this article, TNTP will point out the necessity of debt collection for Enterprises.
1. What is debt collection?
Debt collection means the request of the debtor to pay the creditor money or other assets when due or overdue payment is under the contract or agreement between the parties or at the discretion of the Competent State Agency.
Debt collection plays an important role, and directly affects the finances of Enterprises. Therefore, for debt collection to be effective, Enterprises should apply a variety of policies and measures to collect a debt. If appropriate measures are applied to the debtor, the ability to collect the debt will be easier. The application of illegal or inappropriate debt collection measures can make it much more difficult to collect the debt of the Enterprises.
Therefore, depending on each object, debtors, Enterprises should flexibly apply appropriate measures to help collect debt quickly and easily.
2. The necessity of debt collection for Enterprises
Debt is one of the indicators that accurately reflects the quality of business activities of Enterprises. If the financial activity is good, then Enterprise will have less debt and abundant solvency. On the contrary, if the financial activity is not “healthy”, it will easily lead to mutual capital misappropriation, and receivable debts will last. This will negatively affect the “financial health” of Enterprises.
Firstly, debt collection determines the “life” of Enterprises and avoids risks in business activities.
Enterprises achieve the ideal operating status when there are no past due debts and no capital misappropriation by any Enterprises beyond the stipulated time.
When finances and profits are stable, Enterprises can have financial plans and business plans to develop in accordance with the situation of their business activities. When finances and profits are unstable, Enterprises may borrow capital from credit institutions and banks.
In business activities, borrowing from other organizations is understandable. In case Enterprises borrow capital from other organizations and can ensure payment on time, there is no risk. However, in the case of Enterprises borrowing capital from other organizations to do business but can not guarantee the payment term, the risk for Enterprise is great. If the loan is pushed into the bad debt group, Enterprises may be listed in the “black list”, and it is difficult to continue to borrow money from banks or other organizations. More seriously, the collateral of the Enterprises may be confiscated in this case. In addition, many Enterprises may go bankrupt because they are unable to pay their debts or are unable to pay overdue debts due to the loss of capital because the debts have not been collected.
Therefore, the debt collection has a significant impact on the “life” of Enterprises.
Secondly, debt collection will help Enterprises ensure their business profits.
Profit is understood as the difference between the revenue portion of Enterprise and the part of the cost they spend on production and business activities. Profit is considered the final financial result of business activities, at the same time it is also the basis and the foundation from which there is a basis for evaluating the economic performance of each Enterprise.
Enterprises want to take advantage of the capital of other Enterprises for as long as possible, especially in difficult economic situations like recent years. Most Enterprises make the misappropriation the capital of other Enterprises through non-payment or prolonging the payment period for debt. Therefore, when the debt is not collected, it means that the profit is not guaranteed, greatly affecting the cash flow and finance of Enterprises.
Therefore, the debt collection for Enterprises is essential in the process of its business activities, deciding the “life” of Enterprises as analyzed in the previous section.
It can be seen that debt is an inevitable part of the business today and debt collection is necessary for every enterprise. Therefore, Enterprises need to build effective systems, and procedures for controlling and managing debt, minimizing the arising of debt and ensuring financial stability and development.
The above is to share the legal knowledge of TNTP on the necessity of debt collection for Enterprises. Hope this article will help you.
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TNTP and Associates International Law Firm