How to deal with debt collection during the Coronavirus (COVID-19) crisis

9 min.

The COVID-19 pandemic has the whole world in its grip. Not only is public health at risk, but the global economy is being threatened as well. In order to contain the virus, substantial measures are being taken worldwide. Countries are in lock down, events are cancelled, the hospitality sector, catering establishments and salons are either closed or partially operational. Either way, companies have been tremendously impacted due to government measures preventing the COVID-19 pandemic.

These measures are necessary, because our health is the main priority. However, they also raise other concerns for various entrepreneurs. After all, no work means no income. For many companies, 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 have taken action to support their economies. Various measures have been taken to minimise financial uncertainty as a result of the COVID-19 pandemic on businesses. You can read here which measures are taken per country.

Debt collection during the COVID-19 pandemic: payment delays, insolvency and failing to fulfill contractual agreements

Despite governmental efforts in supporting companies, financial problems will undoubtedly arise as a result of the coronavirus. What should you do if your customer has no financial means to pay your invoices? Or what if they have been declared bankrupt?

Firstly, keep in mind that it is likely that many companies are struggling to pay their invoices on time. As the global economy has slowed down, firms may be faced with a lack of liquidity. Cases of debt recovery may therefore increase, and while some clients affected by COVID-19 may be operational, they may object to pay.

We know that it is also extremely important for your company that you receive the payment that 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 that can be undertaken in your debtors’ country? Are you wondering if standard debt recovery procedures have changed because of the global pandemic? Please contact us. Our lawyers and debt collection specialists will be happy to answer your questions.

This article will cover the following topics:

10 golden debt collection tips

Our advice on how to act as a company with a debt collection case during the COVID-19 pandemic

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 can read more on how to manage your outstanding invoices during the coronavirus crisis and refine your collection strategy in lockdown. Below are the top 3 tips that are important for you:

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 to refine your collection strategy in lockdown: ask your debtor to send you a proposal on how he intends to pay. Have him write a payment proposal down on paper. An e-mail is also perfectly fine. Because a debtor has a written proposal, 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 negativity 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 refuses to pay. Contact your debtor proactively and make the arrangements!

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.

Is judicial debt collection still possible?

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 the current status in their country, 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!

Telephone session Coronacrisis

How to deal with contractual agreements during COVID-19 crisis?

In your contracts you establish agreements about the way in which you do business with your trading partner. 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 counterparty may not be able to deliver, meaning you will have to adapt your collection strategy in lockdown. Read the advice by our lawyers and international debt collection specialists below 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 if you simply cannot pay the invoice within the set term, our advice is to talk directly to your supplier.

Based on our experience, we know 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. Changing your collection strategy in lockdown by for example paying in instalments could be a solution, as this will allow you to have more liquidity during the COVID-19 pandemic.

Your customer is unable to comply with the agreements

Even in this case, our advice is to talk to your customer. Remember that the COVID-19 pandemic is affecting the global economy. Therefore, you should approach your debtor in a respectful manner. 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, 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 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 already had delayed payments or if their credit was poor prior to the COVID-19 outbreak, setting up a payment arrangement might not be the most suitable solution.

Your customer must declare insolvency or bankruptcy

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. The laws applying to this clause differ from one country to another.

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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 under regular conditions 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 COVID-19 pandemic

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 first and foremost a health crisis. Therefore, it is essential to follow all the safety guidelines to make sure that you and your employees stay safe and healthy.

Contact us

For any questions, please contact our lawyers and mediators. Our employees are currently working from home to prevent the spread of the coronavirus, but we are still fully operational within the debt recovery business. We will help you find a suitable solution for both you and your counterparty, even during the global COVID-19 pandemic.