Tips for Collecting Debts

In order to be the leader in the market, Company A took the ‘Sales is Everything’ as its first priority. All the salesmen had done their best to make the deal, but ignore the examination of the clients’ credit and the management of the payment terms. Later on, the sale volume increased a lot, but the company had to face the serve finance burden on collecting debts.

‘Collecting debts’ is a common problem, and the reasons are varied, such as some companies may focus on the sale volume, but ignore the examination of the credit of the other party; some companies may ignore the examination of the contracts; or some companies may ignore to follow up with the debts collection during the execution of a contract, and ect.. So the root reason is the ignorance of the management of debts.
Different companies may have different management structures and departments’ functions, so the management of debts may involve many departments, such as the sale dept., the finance dept., the legal dept., and the management level. However, the key point of the management of debts is the management of the establishment of the debts (contract) and the supervision on the debts collection.

The most important issue in the establishment of a contract is the confirmation of the other party’s status and the design of the relevant transition articles. For example, a company shall specify in the management regulations with the credit examination rules of the clients and the standardized transition articles, which shall include the basic information and certificates of the other party; the responsibility of the examination departments; the different transition articles for the clients with different credit level; the examination requirements on the special occasions, and etc..

Since the other party’s status is changing, despite the confirmation of the other party’s status, a company shall establish a comprehensive client’s status report system, in which the company shall require the salesmen to report and follow up with the change of the client’s status. It is recommended to establish a guideline on the identification of the change of the client’s status, based on the characteristic of its industry and needs, by which the salesmen could be guided to focus on and report for the key points. Normally, such changes include, the client may cease its business, be claimed for a large amount of compensation or return, change its shareholders or the management level staffs, stop to pay in a sudden, or delay the payment and etc..

The management of the execution of a contract could help a company to reduce the risk of the burden of debts collection, but the reasonable and effective supervision system on the debts collection is the key point to guarantee the debts collection.

A company could take many methods to supervise the debts collection. In practice, the relevant effective methods include: 1) to combine the debts collection with the sales volume in the HR management. For example, the HR dept. could set the collection of debts as the precondition of paying the sales commission; or set the debts collection rate as part of the KPI elements; 2) to establish the debts collection rules, such as the reminder system of debts collection, the practical rules on the debts collection (including the reconciliation, the time, methods and content in a debts collection practice); 3) to reserve the relevant debts collection documents, and the handover of such documents, by which the company could have evidence to claim the debts through lawsuits or arbitration.

The management of debts collection is very important for a company, we recommend the companies to establish a comprehensive management system on debts collection.