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How do I prevent old debts from going bad?

Updated: May 24, 2019

Collecting Debt can be a tricky affair, and success and nature of efforts depends on a variety of contextual factors.However, one presumes that “collecting debt” in this case implies, a business receivable that is well past due. This would mean that the debtor, typically a credit customer, has not paid and is perhaps avoid payment. In such a scenario, i.e. of collecting old debt, the typical options in front of the business (i.e the creditor) are:

Offer a settlement: Evaluate if there is any business dependency of the debtor to you. If so, likely such situation should not have arisen in first place. And if it has arisen because the debtor is running out of funds - it may be prudent for you to engage constructively with the debtor and offer a settlement of the dues at a discount, before things worsen

Legal Recourse: If you are a small business in India, your customers are supposed to pay you within 45 days. Else, the customer is liable under the MSME Act. You should make the debtor (customer) aware of your dues and your MSME status and the MSME Act implications. If this fails, you can complain through the MSME Samadhaan scheme of the Government. Lastly, you could file a legal case, with the provisions of the MSME Act in your favour.

Hire a professional collections agency: This could be an option in case, you do not have the time/energy to pursue the case legally. One needs to be careful in picking an agency that pursues only legally valid means of recovery

However, the need to collect such “difficult” debt usually arises in first place, because we do not have good processes for account receivables management. If you implement best practices in credit management and collections, you can avoid 90% of such scenarios.

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