How to deal with debt collection during the Coronavirus (COVID-19) crisis
The coronavirus has the whole world in its grip. Not only is public health at risk, but the global economy is being threatened as well. This is due to the fact that, in order to contain the virus, substantial measures are being taken worldwide. Borders are being locked down, events are being cancelled and catering establishments, hairdressers and other shops are being closed. Companies are hit hard by the government measures.
These measures are necessary, because our health comes first. However, they also raise other concerns for various entrepreneurs. After all, no work means no income. For many companies, therefore, the coronavirus crisis will also cause financial problems. You can read more information on the payment behaviour of European companies during the coronavirus crisis.
Fortunately, European governments already took action to support their economy. Indeed, various measures have been taken to minimize the financial problems that coronavirus is causing to companies. You can read here which measures are taken per country.
When debt collection arises: payment problems, not fulfilling contracts and insolvency during the coronavirus emergency
Although it is nice that the government offers support to companies, financial problems will undoubtedly arise for companies as a result of the coronavirus (COVID-19). What should you do if your customer has no financial means to pay the invoice? Or what if they have declared insolvency? We are happy to give you advice.
First of all, you should keep in mind that it is likely that many companies find paying their upcoming invoices very hard. In fact, the global economy has slowed down, and firms may be faced with a lack of liquidity. Cases of debt recovery may therefore increase, but insolvent clients may have been affected by COVID-19, and therefore they have objective reasons why not to pay.
However, we know that it is also extremely important for your company that you receive the compensation you are entitled to, despite the coronavirus. This is why we will do everything in our power to achieve the best possible outcome in your debt collection case, even during these difficult times. Are you unsure about the debt collection procedures which can be undertaken in your debtors’ country? You are wondering if standard debt recovery procedures have changed because of the pandemic? Please contact us. Our lawyers and debt collection specialists will be happy to answer your questions.
This article will cover the following topics:
Debt collection during COVID-19: What is the best strategy? Our debt collection specialists and lawyers share the 10 golden tips for debt collection during the Corona crisis. With these tips you know how to manage outstanding invoices during the coronavirus crisis. Here we already give you 3 important tips:
1. Ensure written confirmation of your claim
A tip that you should always take into consideration in your debtor management process, which is especially important during the COVID-19 outbreak: ask your debtor to send you a proposal on how he intends to pay. Have him write down a payment proposal down on paper. An e-mail is also perfectly fine. Because a debtor has written down a proposal on paper, you have an acknowledgement of the claim. Preferably, it is better if the debtor explicitly acknowledges the claim in writing. By doing so, the debtor confirms that he owes the entire outstanding claim (and possible rent). Some debtors try to avoid this, as a payment proposal on paper is a very useful alternative.
Many debtors will now claim that they are unable to make a payment proposal, because it is unclear from what point onwards turnover can be generated again. In that case, have the debtor make a proposal, in which, for example, he pays a relatively small amount on your claim in the first three months (April, May and June), and larger amounts from July onwards. With this written confirmation you ensure that the claim cannot and will not easily be disputed at a later stage. This simplifies the collection procedure of the outstanding invoice. It avoids having to go through an expensive and lengthy procedure for an unjustified dispute. Especially if the debtor truly cannot pay.
2. Disputes: solve them now!
Your accounts receivable portfolio will undoubtedly contain disputed claims. It is important to resolve these disputes as soon as possible. After all, there is a chance that your debtor will still have some reserves to fulfil the payment agreement, rather than in a few months' time. We are heading towards an enormous economic recession, in which many entrepreneurs will go bankrupt and will no longer be able to meet their payment obligations after the summer.
Furthermore, the courts will become overloaded and procedures will take even longer than they already do. The court will pressurise both parties to settle the case out of court, whether it is justified or not. So, avoid all the costs and negative energy and settle it now. It is more likely that you can get it arranged now and still be able to expect payment, than during the process when the party stands its ground and refuses to pay. Contact your debtor proactively and arrange it!
3. Investigate whether the reason of non-payment and/or postponement of payment is caused by COVID-19
We see that the Corona card is being pulled very quickly, and often by debtors who are still fully operational and can meet their payment obligations. Does your debtor claim not to be able to pay due to COVID-19? Then ask for written evidence to verify this. If a debtor truly no longer has the financial needs to fulfil the payment agreement, it should be possible for the debtor to provide sound evidence. For example, this could include:
- A statement from a third-party expert such as an accountant
- Evidence requesting governmental support
- Screen shots of bank statements showing insufficient balance
If the debtor does not provide these documents, or if these documents indicate that the situation is not as bad as the debtor claims to be, the payment simply must be made.
In some cases, a judicial debt collection procedure may be the best solution. However, many entrepreneurs wonder whether legal proceedings are currently possible. Indeed, many countries are in lockdown, and this also affects the European courts. In this article, our international lawyers explain what the current status in their country is, and how the courts deal with it.
In general, most courts only handle urgent procedures, while other legal proceedings have been postponed. Urgent procedures are often conducted online or without an audience. It is also possible to start a new procedure online.
Free telephone consultation: dealing with debtors during COVID-19
Debt collection during COVID-19: how to deal with this properly? Our collection specialists and lawyers are happy to discuss this with you. During the telephone consultation, we will give you useful tips and review your debtor management. This will ensure that you have as few outstanding invoices as possible, even in times of COVID-19. Book your free telephone consultation now!
In the contract you lay down agreements about the way in which you do business with each other. Or perhaps you have made verbal agreements with your customer or supplier. What can you do if your trading partner may no longer be able to meet these agreements because of the coronavirus? Or perhaps you yourself are the one who can no longer meet them. Indeed, it is possible that you or your counterpart may not be able to deliver anymore because borders are closed.
Read the advice our lawyers and international debt collection specialists on how to deal with contract agreements during the coronavirus crisis.
Your company has difficulties meeting agreements
If you can no longer deliver your goods or your orders are cancelled, or you’re just unable to pay the invoice within set term, our advice is to talk directly to your supplier.
We know from our long experience that there are often different ways to solve a debt collection problem. Do not let it get to the point that a conversation is no longer possible, and that the mutual relationship is disturbed. Try to find the best solution as soon as possible, together with your supplier. For example, you could agree on a payment arrangement. This way, you’ll have the chance to pay your invoice in instalments. A payment arrangement will allow you to have more liquidity to face the economic crisis due to coronavirus.
Your customer is unable to comply with agreements
Even then, our advice applies: talk to your customer. Remember that COVID-19 pandemic is affecting global economy as well and, therefore, you should approach your debtor in a friendly way. Be understanding of your client’s situation and consider agreeing on a payment arrangement if your client proposes one. In fact, if your debtor finds themselves in a difficult financial state or have a lack of liquidity, you can consider setting up a payment arrangement. After all, the client may intend to pay your invoice, but is unable to do so in full immediately. This approach shows understanding of the circumstances and a willingness to help them, which may consolidate your business relationship.
However, before agreeing to a payment arrangement, it is important to check whether this is feasible for both of you. We advise you to perform a credit check on your business partner. If, for instance, they are just experiencing a difficult month due to coronavirus and recent losses in revenue and there is potential for them to recover, a payment arrangement may be useful. However, if they have delayed payments before or if their credit was already bad prior to the COVID-19 outbreak, setting up a payment arrangement might not be the most suitable solution.
Unfortunately, the loss of revenue caused by COVID-19 pandemic might cause your client to go bankrupt. What can you do in this case?
To receive the payment of your invoices, you will need to inform the liquidator. After the settlement of the bankruptcy, you will find out how much of your debt you can recover. Alternatively, if your client is unable to pay the invoice, it might be possible to recover your goods. This practice is called retention of title. Did you include a retention of title clause in your contract? The laws applying to this clause differ from one country to another.
How can you reach your debtor if they are in lockdown?
Is your debtor located in a country which is currently in lockdown? If there were disruptions in their business due to the coronavirus situation, communication might be more difficult. However, there are ways in which you can still reach them in order to discuss the payment of your invoice:
- Check your debtor’s company website and previous communication you had with them.
After the coronavirus pandemic started, many companies sent e-mails to their clients and business partners, in order to inform them how they will operate during the following weeks. Some companies might have also published this information on their website, in order to make clear to all potential customers how to reach them. The fact that your debtor is not working as usual does not mean they are not working at all.
- Send your debtor an e-mail.
Due to the safety measures in place, it is possible that some businesses are asking their employees to work from home. If you have a debt collection case during the coronavirus pandemic, we advise you to send your client a friendly e-mail. In your e-mail, you should remind them about the outstanding invoice and ask them about their reason for not paying. You should try to get as much information as possible and discuss possible solutions.
Acting responsibly during the coronavirus emergency
Bierens Debt Recovery Lawyers wants to achieve the best results for clients, while also treating debtors with respect. We will always abide by the national governments’ regulations and we will be considerate of companies facing difficult times because of the coronavirus. This is not only an economic crisis, but also and foremost a health crisis. Therefore, it is essential to follow all the safety guidelines, in order to make sure that you and your employees stay healthy.
For any questions, please contact our lawyers and mediators. Our employees are currently working from home to help coronavirus from spreading even more, but we are still in the debt recovery business. We will be happy to assist you with your debt collection case. Our lawyers will think along with you and help you find a suitable solution for both you and your counterparty, even during the coronavirus crisis.