The 10 golden debt collection tips during COVID-19
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.
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.
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
In this day and age, what is the value of a credit report? A company can still have a nice credit score on paper, but in reality, it is not able to meet 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 a 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 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!
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 a third-party pledging claims. Make sure that no false security is provided, and that the security construction is properly recorded. We often see security agreements and other documents drawn up 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 now. It is possible that your goods are still with your debtor and can be recovered and redeemed in another way. It is possible that your debtor may be bankrupt, and you may be able to appeal to your retention of title during the bankruptcy. 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 used. Force majeure is invoked all the time. It is still completely unclear whether 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 available. This is often the case, so don't let force majeure be used 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 afterwards. 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. Contract the jurisdiction of the appropriate court
When concluding (new) contracts, it is wise to agree on the competency of the judge. We advise you to include this in the form of an alternative, such as, if the competent court is in your country or if the competent court is in your debtor's country. If a legal proceeding must be instituted, you have the option of either going to your own court or to the court in your debtor's country. Your debtor will also accept this contractual clause depending on the available options determined by you. This prevents you from having to resort to proceedings abroad, where proceedings are often longer and more costly.
MORE INFORMATION ON DEBT COLLECTION AND DOING BUSINESS DURING COVID-19?
This unique situation raises many new questions. On this special Corona page, you will find all kinds of useful information on debt collection, doing business, payment behaviour, judicial collection and much more!
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