The 10 golden debt collection tips during COVID-19
Debt collection during COVID-19: What is the best strategy? Our debt collection lawyer Bart van Onna shares the 10 golden tips for debt collection during the COVID-19.
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 times of COVID-19, is to ask your debtor to send a proposal on how he intends to pay. Have him write down a payment proposal on paper. An e-mail is also perfectly fine. This way, you have a confirmation in which your debtor explicitly acknowledges the claim in writing. By doing so, the debtor confirms that he owes the entire amount (including possible rent). Some debtors try to avoid this, as a payment proposal 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 of 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 and 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 a payment, than during court proceedings when the counterparty 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 are capable of fulfilling their payment obligations. If your debtor claims he cannot 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
- Screenshots 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.
4. Be aware of creditor agreements and companies splitting up into viable and non-viable parts
We have noticed that more and more companies are setting up new private companies, so there is a high chance that they are splitting up their companies into viable and non-viable parts. This means that the debts will remain under the old company while business is resumed under the new company. In this context, the old company often makes a proposal for a creditors' agreement. If the creditors do not agree to this, the directors of the old company can simply write off the unpaid invoice. Make sure to be aware of any changes in the trade register of the Chamber of Commerce. Often it is possible to predict the future of your debtor here.
5. Credit rating is a lot more difficult
What is the value of a credit report in this day and age? A company can still have a nice credit score on paper, but in reality, cannot fulfil its payment obligations. Financial developments in the past few weeks have been so rapid that the creditworthiness of many companies has completely changed in a short period of time. It is therefore important that you remain in contact with your debtor, and carefully monitor your debtor’s situation on a daily or weekly basis. In most cases, this will be more beneficial than any credit report.
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 provide useful tips and review your debtor management processed. This will ensure that you have as few outstanding invoices as possible, even in times of COVID-19. Book your free telephone consultation today!
6. Demand additional securities
If your debtor is unable to meet the payment agreement, it is worth investigating whether your debtor is able to provide securities. Think of a guarantee from the director or board of directors or even a form of security from third-party pledging claims. Make sure that no false security is provided, and that the security is properly recorded. We often see security agreements and other documents drafted in such a way that they are not legally valid, and therefore have no value. This is exactly what you want to avoid.
7. Make use of retention of title
In addition to tip 6, you may have agreed upon a retention of title. In the context of damage prevention, it is advisable to enforce this retention of title. It is possible that your goods are still with your debtor and can be recovered and redeemed in another way. If your debtor has been declared bankrupt, you may be able to appeal to your retention of title during the bankruptcy procedure. However, in practice, it is often a lot more difficult to recover your goods.
8. Is an appeal to force majeure applicable?
In this day and age, the term 'force majeure' can be loosely applied. During these difficult times, it remains unclear if COVID-19 should legally be regarded as force majeure. What is clear, is that there is no question of force majeure if there is a reasonable alternative option. In most cases, other alternatives can be explored, so do not allow your debtor to invoke force majeure as an excuse.
9. Be transparent on matters you cannot guarantee
When making agreements with your debtor, it is important to provide clarity on certain matters that you cannot guarantee due to the current crisis. If you communicate and record this well beforehand, there will be fewer problems in hindsight. If, for example, you require parts from China for the manufacturing of certain products, it may be wise not to agree on a definite delivery term, because you may not be able to guarantee that certain items will be delivered on time.
10. Agreements on the competent court
In your terms and conditions, you can agree on the competency of the court. This means that if legal proceedings will be initiated, you have the option of litigating in your own country or in the country your debtor is located. Your debtor will also have to accept this contractual clause, which could prevent you from having to litigate abroad. Often the duration is much more lengthy and costly.
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