To effectively control debt and conduct efficient debt recovery operations, businesses should consider creating a debt management policy. What basic contents should a debt management policy include? In this article, a lawyer from TNTP will provide insights on the essential contents of a debt management policy in businesses.

1. What is a Debt Management Policy?

A policy is a document that sets out the regime, operational activities, task allocation, and the rights and obligations of the subjects governed by the policy. This document is established by agencies, organizations, or businesses to regulate corresponding activities within their internal operations.

A debt management policy may include specific contents such as: managing and classifying debts and debtors; debt resolution and processing procedures; responsibilities of relevant individuals; principles in debt recovery activities, etc. All debt recovery activities of an agency, organization, or business must comply with the content of the debt management policy issued by them to ensure unity and effectiveness in debt recovery.

2. Main Contents of a Debt Management Policy

a) Managing and Classifying Debts and Debtors

This is one of the main contents that a debt management policy must include. The procedures for resolving and processing debts involve a series of steps to resolve the debt according to a timeline, corresponding to the business’s debt. Specifically, all debts and debtors must be divided into specific groups for corresponding debt recovery measures, such as: Smaller debts with newly incurred debt periods will have lower recovery priority than larger debts with extended periods; Debtors are also classified based on their cooperative attitude, financial capacity, and assets.

Managing and classifying debts and debtors helps businesses to quickly and effectively implement debt recovery strategies for each debt and debtor. Management and classification are the first tasks that a business must perform when any debt arises to ensure tracking and debt processing when necessary, and to avoid neglecting debts that can affect the company’s cash flow.

b) Debt Processing Procedure

After classifying debts and debtors into corresponding groups, the next necessity is what businesses need to do for debt recovery. Accordingly, the debt processing procedure will specify these issues.

There are many ways to handle a debt, from negotiating via phone, email, letters to more complex measures like using debt collection services; or filing lawsuits at dispute resolution agencies, etc. Each method has its advantages, disadvantages, duration, and costs, and must be conducted under certain conditions for maximum efficiency.

Typically, the first debt recovery actions a business should take are contacting and notifying the debtor of the obligation to pay when the debt is due, with the frequency of contact increasing over time depending on the value of the debt and the debtor’s attitude.

Using the services of a law firm will be implemented when the business does not have the capacity,
In many necessary cases, if the debtor initially does not cooperate and the debt value is large enough, the business can absolutely initiate litigation immediately to ensure effective debt recovery.

c) Debt Recovery Principles

Like other business activities, debt recovery will include mandatory principles to ensure effective debt recovery and prevent potential risks. One of the most important principles is legal compliance and adherence to the business’s internal regulations, as all debt recovery activities, while potentially beneficial to the business, can become risks or even cause the business to cease operations if they violate the law and business regulations. Therefore, businesses need to pay attention to establish appropriate debt recovery principles that both ensure the interests of the business and comply with legal regulations.

While there are still many aspects of debt recovery operations to consider, within the scope of this article, TNTP only presents the main and important contents to provide businesses with necessary information about the need for a debt management policy. We hope this article is useful for the operations of businesses.