Any company operating in any industry has to make a profit in order to survive. Mainly by exchanging goods or services with their customers, through a well defined counterparty. In many cases, for large customers, payments are made periodically on a regular date. This is the main reason why receivables are set up. How then to manage the claim of one’s debts?
Receivables and debts: what you need to know
For transactions of a certain size, a supplier may grant a payment term to its customers. This fee is called a receivable. By definition, a receivable is an overdue amount of money that a customer owes a company for goods or services received. What is the difference between a receivable and a debt? A receivable is a payment that a legal or physical entity owes a customer, while a debt is an amount that a company owes to another entity. If this payment is not honored within the agreed timeframe, it can be said to be unpaid. For the procedure of debt collection, click here to learn more.
The conditions to be fulfilled for a debt collection
The term “debt collection” refers to all the steps taken to obtain payment of debts. These procedures are often used by companies for various reasons. However, the good progress of the operation must meet some conditions, three to be more precise. Firstly, a claim must be supported by a document. Usually a document, a deed or a sales contract made between the supplier and the customer. It should be noted that a quotation is an informative document, which serves to provide the customer with the desired information concerning one or more items. It can thus not constitute a commitment of the customer. Secondly, the amount of the transaction must appear on the said document, because a claim must necessarily be liquid. An estimate cannot be sufficient. The value of the items must be accurately quantified. Finally, the due date for payment must be indicated on the document. No payment can be prescribed to the customer before the defined due date. Therefore, the date must be passed for the payment to be due. If there is still no payment and the three conditions mentioned above are met, a company has the choice between the following options: amicable or judicial debt collection.
A common procedure, amicable debt collection
There may be several valid reasons why a payment has not been honored in a timely manner. The procedure for the collection of unpaid debts always begins with amicable collection. Knowing that the smooth running of a business is based on a relationship of trust, the resolution of problems amicably is always to be considered. Moreover, to immediately start legal proceedings would require additional time and resources that a company would certainly prefer to avoid. Reasons to resort to amicable debt collection are often advised. The collection can start with a phone call or the sending of a formal notice by e-mail. It can also take the form of a document, a reminder letter. The goals of these maneuvers are to inform the customer first about the claim of his due, or to find a suitable solution to preserve the commercial relationship already in place. In most cases, this procedure succeeds in resolving the customer’s unpaid debts perfectly.
A judicial procedure of collection
When the attempt to solve the situation by an amicable method fails, a company can then undertake a judicial debt collection. This is a necessary extreme solution for difficult customers. This procedure would not only allow to claim its due, sometimes with interests, but also to impose penalizing measures for the infringement of its rights. A collection can be an injunction to pay delivered by a bailiff. Perfectly adapted for small claims, it can only be done if an amicable collection has already been made before. Then, a summons in summary proceedings allows to bring the case before a judge. This option can encourage the client to settle his outstanding debts before the court date, otherwise he will be severely sanctioned by a competent court. Finally, a writ of summons on the merits, which consists of obtaining a judgment, always with the aim of receiving payment. The latter is appropriate for large debts.