Entrepreneurs face daily administrative burdens, impairment, frozen assets, loss of profits, and slowdown of company growth due to the poor debt management.
First of all, it is important to check the information on the co-operation partner prior to the transaction - solvency, financial standing and payment culture as a whole, including negative information such as debt or risky counter parties. Information is obtained from various credit information databases. When assessing the client's cooperation partner, the guidelines and recommendations of the State Revenue Service regarding the assessment of the counterpart's reliability are taken into account.
Secondly, it is advisable to develop credit risk management procedure. It establishes procedures for communicating within the company, reports of late payments, and a specific way for client's debtors to be informed about the existence of a debt, demand to pay the late payment willingly and the consequences of non-payment.
Thirdly, it is necessary to take timely action to prevent payment delays. Contracts must clearly and unambiguously specify payment procedures and deadlines. The warning stamp on the invoice will discipline and inform about the adverse consequences that may occur if the invoice is not paid in a timely manner. Adverse events may include the insertion of information on late payments in the credit information companies’ databases.
Fourthly, legally correct and forward-looking documentation is important. Company documents are often not prepared for later evaluation, for example, for litigation (court). In this case, due to legal obstacles and incorrect documentation, the company loses the case or consumes a lot of time to eliminate such errors, giving to the debtor opportunity to avoid fulfilling of their obligations.
Fifth, there are no miracles. If the counterpart is delaying fulfillment of obligations, do not wait more than 30 days. Shorter debt period means better chances to recover the debt and lower maintenance costs.