Approaching non-paying customers is more difficult now than ever due to laws put in place at the beginning of the pandemic. Maneuvering the current economic climate and trying to collect payment from debtors may require a specialized strategy.
The global average for days sales outstanding (DSO) is trending upward, according to data from the Bierens Group, a debt collection agency based out of the Netherlands. Average DSO worldwide was 66 days in 2020, a two-day increase from 2019, and is predicted to rise to 68 days in 2021. Bankruptcies are down on average, 17.2% globally, according to the same data.
DSO and bankruptcy rates are often used as a thermometer for the health of the global business economy.
However, bankruptcy and DSO data vary greatly across countries based on what financial support mechanisms were put in place to mitigate the impact of COVID-19. It also depends on the strength of the country’s economy pre-COVID and which industries a country relies on financially, pointed out attorney Alexandru Buzamet, of the Bierens Group, during a webinar for NACM and FCIB, International Debt Collection During COVID-19. “That gap will become even bigger with the effect of the financial crisis,” Buzamet said.
In response to the pandemic, countries put different bankruptcy protection measures in place. Some of those measures have gradually lifted in certain countries as vaccines roll out, but other protection measures have continued, which attorney Bart van Onna, of the Bierens Group, describes as an unsustainable approach.
“The numbers of bankruptcies are at an all-time low,” van Onna said. “The financial aid is enormous; so, for me, this is not a normal situation. It’s an unhealthy situation, but this is going to change when the government aid stops.”
Buzamet added that these protections “give more confidence to debtors to hide behind the corporate veil,” leaving lenders to deal with outstanding invoices and unpaid debts. “It’s a very debtor friendly environment,” he said.
That’s why standard debt collection procedures that credit professionals used pre-pandemic may not be as effective today. The lawyers recommended several steps to follow and a personalized approach for each debtor’s case.
Ensure Written Confirmation of your Claim
Keeping an organized paper trail will simplify the collection procedure and reduce some obstacles for debt collection lawyers, according to Buzamet. Written confirmation can come from a debtor through email or WhatsApp in most countries.
Solve Open Payment Disputes Now
Your debtor likely still has some reserves to pay; but after government aid stops, repayment may no longer be possible. “The golden rule in debt collection is the sooner you take action the higher the chance you have on collecting the claim,” van Onna said.
Investigate Reasons for Non-Payment or Postponement
Lenders should request financial documents to verify the reason a debtor gives for nonpayment. “The COVID card is being pulled out very quickly by companies that are hardly affected by COVID-19,” van Onna explained.
Ask for Additional Securities
Creditors can increase the chance of repayment by implementing safety nets like payment in advance, retention of titles and double-checking contracts.
Make an Express Choice of Applicable Law and Competent Court
This is something attorneys and creditors can work on together. Making the right choice of court and laws will give companies a strategic advantage and increase the chance of recovering costs.
Buzamet said lenders should keep in mind, “All companies have been affected by the COVID-19 pandemic so showing a bit of understanding might bring you a better result.”
This article first appeared in eNews, a publication of NACM National. It is republished with permission.