Debt in business: how to stay out of debt and get your money back on time
The construction sector in Lithuania has not lost its "leading" position in terms of indebtedness and bankruptcy risk for years. Trade, transport and manufacturing companies, which also have a high level of overdue debts, are following behind. Debt is a persistent problem in business, and not only in vulnerable sectors. Every company, regardless of the nature of its business, can face insolvent partners or customers. The question is therefore "how to recover debts efficiently and avoid mistakes?" is becoming a crucial issue for everyone.
According to Kamilė Šemeklytė, Associate at AVOCAD, the problem of debt in business is not only financial, but also strategic. "Every day overdue reduces the likelihood of actually recovering money. Effective debt collection is a process in which choosing the right actions at the right time is crucial," the lawyer emphasises.
She said that it is crucial for all businesses to keep their books up to date and to take immediate action in the event of overdue debts from debtors, without expecting the debtor to take action to settle the debt once it is overdue. It is recommended that, whether the overdue obligation is large or relatively small, the debtor should be contacted promptly in writing reminding him of the overdue obligation and inviting him to honour it.
Ideally, the debtor will immediately honour the overdue obligation and the failure to pay on time was just an accounting error or some other human misunderstanding. In this case, the creditor recovers the money without further loss.
The lawyer also points to two other possible scenarios that seem less favourable at first glance but still help the creditor: the debtor can explain the reasons for the delay and offer solutions, or he can not react at all and ignore the reminders. In both cases, the creditor knows what to expect: either a postponement or rescheduling of the debt can be negotiated, or the creditor will have to prepare for legal proceedings.
Importantly, in either case, the material collected can become evidence in court. If the debtor is liable, it is written proof of his acknowledgement of the debt or the reasons given. If the debtor does not respond, it is evidence of dishonesty and non-cooperation, which can have a significant impact on the outcome of the case.
The question often arises - what is the benefit to the creditor of agreeing to defer or reschedule a debt?
At first glance, it seems that only the debtor wins in this case. But it is important to understand that a written agreement is very strong evidence. If the debtor still defaults later on, you will no longer have to prove in court that the debt exists - the signed document itself will prove it. This makes the process much quicker and simpler.
In addition, the parties may agree on additional safeguards. For example, by providing for the agreement to be approved by a court. If such a court-approved agreement contains a clause stating that failure to comply with the agreed standstill arrangement will entitle the creditor to apply to the court for a writ of execution and, if one is issued, to go directly to the bailiff to enforce the debt. This means that the bailiff could be contacted immediately, bypassing the lengthy court process. The result is time and cost savings.
Therefore, according to AVOCAD's lawyer, although court often seems to be the quickest way, practice shows the opposite: doing your "homework" before the court proceedings can not only help you to recover the debt faster, but also to avoid additional losses. Timely action is the key to protecting a company's finances and ensuring effective debt recovery.