Debt collection is always one of the “tiring” matters for companies. Commercial activities and goods trading take place every day at an increasingly fast pace, leading to an increase in the number of receivables from customers and partners, and not all customers and partners can make the payment in due course. The late payment is a direct impact on the capital flow of companies, especially for large debts that cannot be recovered, it will stop the financial flow, which can directly push companies to the state of insolvency or go bankrupt. Therefore, debt collection to companies is an important role.
1. What is debt collection to companies?
Debt collection is the act of requesting debtors to make the payment of past-due debts in form of money or assets that must be paid to creditors under their agreements and contracts.
An ideal operating state is when there are no overdue debts and no capital misappropriation by any other companies beyond the stipulated time. However, this ideal state does not exist in the practice of almost every company.
In fact, most companies want to appropriate capital from other companies as long as possible as this may be more beneficial for their businesses, especially in the difficult economic situation for the past few years.
Limited liability companies, businesses go bankrupt because they are unable to pay their debts or cannot pay their past-due debts. Therefore, debt collection is of significant importance to companies.
2. The significant importance of debt collection to companies
First, debt collection determines the “life” of companies and avoids the risks in their business operations.
An ideal operating state is when there are no overdue debts and no capital misappropriation by any other companies beyond the stipulated time.
When companies are in a stable financial state with sufficient profits, they can develop their own financial and business plans in accordance with their business operations. When the financial state is not stable, companies may have to borrow money from credit institutions and banks.
In business operations, borrowing capital from other organizations is understandable. In case companies borrow capital from other organizations and can ensure the payment on time, there will be no risk at all. However, in case they fail to guarantee the payment term, many significant risks may arise.
If that loan is classified into the bad debt group, these companies may be put on the “black list”, making it difficult for them to continue to borrow money from banks or other organizations. More seriously, the business’s collateral may be confiscated or distrained to ensure the payment obligation. In addition, many businesses may go bankrupt because they cannot pay their past-due debts due to the exhaustion of capital, or the business debts being unrecovered.
Second, bad debt collection will help businesses ensure their business profits.
Profit is understood as the difference between a company’s revenue and its expenses. Profit is considered the final financial result of business activities, and also the basis and foundation to evaluate the economic efficiency of each company.
In fact, most companies want to appropriate the capital of other ones as long as possible, especially in the difficult economic situation for the past few years. Most businesses misappropriate capital from other businesses through non-payment or prolonging the payment period. Therefore, when the debt is not recovered, the profit is not guaranteed accordingly, which greatly affects the cash flow and financial state of the company.
Third, ensure the financial health of organizations, individuals and companies
For individuals: Through their relationships, carelessness in entering into contracts, without collateral… leading to the borrower’s failure to properly fulfill the payment obligation. Debt collection plays a very important role in minimizing the loss of assets, as well as preserving and maintaining the relationships between creditors and debtors.
For companies and other organizations: Debts will, directly and indirectly, reflect their financial performance. In order to ensure financial health as well as profits, debt collection has a significant impact on the business operations of companies and other business organizations.
In general, debt collection is extremely important to companies, ensuring financial health and safety, helping them to operate effectively and avoiding possible risks in their business activities. Companies need to acknowledge the importance of debt collection and choose an effective and appropriate debt collection method.