Collecting bad debts

Cash is the lifeblood of your business; even in the manufacturing industry. Earlier, you received some tips to improve your cash flow. In this article, I will provide you with tools to mitigate damages from bad or non-paying debtors; we call it high end debt collection.

If all goes well, you have recently discussed the annual accounts with your accountant or will do so in the (very) near future. A sore subject remains the discussion of accounts receivable: are they still being paid? Shouldn't you write them off?

That write-off hurts and becomes even more painful if you have produced and performed, but you can no longer collect the delivered products (for example, because you have a retention of title ) or withhold them (think of the lien). Unfortunately, this is very common.

The answer to the question of whether you should just write off the claim should not be answered - without consulting a specialist - simply in the affirmative. In fact, it is quite possible to collect claims that at first glance seem impossible to collect.

Tip #1: Collection through the bankruptcy court

Sometimes there is no inability to pay, but unwillingness to pay: the debtor has the money, but chooses not to pay your claim. Court proceedings are often expensive and sometimes the amount of the claim does not justify the cost of the proceedings. Such proceedings also often take a long time, sometimes up to a year. That does not apply to a petition in bankruptcy court. To increase the pressure, you can choose to file for the debtor's bankruptcy: if the money is not there, the debtor will (possibly) be declared bankrupt. If the money is there, then your claim will most likely be paid before the hearing.

Should the debtor's bankruptcy be declared anyway, a trustee will look into the debtor's affairs and do his best to achieve the best possible outcome (= repayment) for the joint creditors (you can read more about this in this article).

Tip 2: Collection through directors' liability

If your debtor is a legal entity (BV, NV, Foundation) and that director entered into the agreement with you while he knew or should have known at the time that the debtor would not be able to fulfill its obligations and also would not provide recourse for the resulting damages, you can file a claim directly against your debtor's director (see also this post).

This is also possible if your claim is not paid because the debtor has exhausted all possibilities for recourse, through so-called recourse frustration. This form of collection is also possible if the debtor has been declared bankrupt. You can do this without the cooperation of the trustee.

Don't just write it off

If you have recently spoken with your accountant and the write-off proposal does not sit well with you, it would be wise to spend an hour or so with me or one of my colleagues so that we can assess whether it makes sense to take further steps. After all, he who does not dare...

Books off.