Collecting bad debts is a major challenge facing companies after an acquisition, especially in the Saudi context. Acquisitions often lead to changes in the administrative and financial structure, which can impact the collection of outstanding debts. Understanding how to handle these debts effectively can contribute to improving the financial position of the acquiring company and help it achieve its strategic objectives.
In this article, we will review the methods and techniques necessary to collect bad debts after an acquisition, as well as the legal and administrative challenges companies may face in this context.
What is a Corporate Acquisition?
An acquisition can be defined as the purchase of shares by one company of another for a predetermined sum of money. This process is a strategic means for companies to expand their business or enter new markets without the need to establish a new company, as is the case in a merger. In an acquisition, the acquiring company remains in existence while the assets and operations of the acquired company are integrated into its organizational structure.
The acquisition process is complex and requires careful consideration of financial and legal factors. After an acquisition, companies may face challenges in collecting bad debts, requiring specific procedures to ensure the recovery of receivables. Below, we will discuss these procedures in detail and how to manage them effectively to maximize the benefits of the acquisition.
Are you struggling to collect bad debts after an acquisition? With B2B Debt Collection, we offer specialized solutions that ensure the prompt and efficient recovery of your receivables in Saudi Arabia. Contact us now for a free consultation tailored to your needs.
Collecting Bad Debts After a Company Acquisition in Saudi Arabia
Procedures for Collecting Bad Debts After a Company Acquisition
Acquisition is a strategic step that companies may resort to in an attempt to improve their financial position or expand their operations. However, an acquisition may entail the transfer of new responsibilities, including the collection of bad debts. In some cases, the reason for the acquired company selling its shares may be due to its inability to collect bad debts from customers or partners. This is where post-acquisition debt collection strategies come in to ensure the recovery of receivables and protect the rights of the acquiring company.
Collection procedures vary depending on whether the acquired company is a creditor or a debtor:
Collection procedures for the acquired company as a creditor
If the acquired company is a creditor, the following steps must be followed:
Rescheduling bad debts: The acquiring company must prepare a list of bad debts, including the names of debtors and delinquent customers. This helps prioritize and analyze the financial situation of each debtor.
Establishing a dedicated bad debt department: An internal department must be established to focus on collecting bad debts, ensuring a dedicated team manages this process efficiently and quickly.
Establishing a collection regulation: A regulation must be developed that includes accurate data on debtors and tracks their financial status, facilitating collection processes and increasing the chances of recovering receivables.
Cooperating with specialized companies: Relying on experienced collection companies can enhance the chances of success, as these companies possess the necessary tools and techniques to collect debts effectively.
Legal pressure on debtors: Sometimes legal action or guarantees are required to motivate debtors to repay their debts.
Collection Procedures in the Case of an Acquired Company in Debt
If the acquired company is indebted to a third party, the following steps must be taken:
Debt Rescheduling: The acquiring company must prepare a detailed schedule of debts, which facilitates management and follow-up.
Debt Classification: Debts should be classified into senior and ordinary debts, which helps determine repayment priorities.
Primary Debt Repayment First: Priority debts should be paid first, as they are of high priority and require prompt repayment to avoid financial risks.
Providing Guarantees to the Acquired Company’s Creditors: The acquiring company must provide sufficient guarantees to creditors to secure capital, which facilitates the process of renegotiating financial terms.
What are the Debt Collection Procedures?
At B2B Corporate Debt Collection Services, we undertake a variety of procedures to collect bad debts in Saudi Arabia. The success of these procedures depends on systematic plans, not random attempts to claim debts. Therefore, experience and expertise play a vital role in achieving the desired results.
Debt Collection Procedures:
Collection procedures involve scheduling bad debts on behalf of the creditor, and are as follows:
Gathering the necessary information: We gather all information and documents related to the debtor, facilitating communication and improving the chances of collecting overdue debts.
Amicable Negotiation: The collection process typically begins with amicable communication with the debtor. Success at this stage depends on negotiation skills and an understanding of the debtor’s financial situation. If it is determined that the debtor is having difficulty paying the full amount of the debt, a settlement may be considered, resulting in payment of the debt in installments. The goal here is to reach an agreement that guarantees repayment of the debt without resorting to the courts, which could cause losses for both parties.
Basic Characteristics of an Amicable Settlement:
These characteristics include mutual consent between the debtor and creditor, whereby a binding agreement is signed between both parties that includes the agreed-upon terms. It also requires the presence of the basic elements of the contract, such as capacity, cause, and mutual consent.
Steps in Case of Unsuccessful Amicable Settlement:
If amicable negotiations fail, we follow several procedures:
Repeated Visits: We seek to pressure the debtor through repeated visits and phone calls. Multiple communications: Increased communication via phone and text messages to remind the debtor of the seriousness of the situation if no agreement is reached.
Social pressure: Sometimes we use social pressure methods through home visits or calls from family or friends.
Resorting to the courts: If all amicable efforts are unsuccessful, we resort to filing a lawsuit against the debtor, which leads to the court taking legal action to recover the debt.
Basic rules when resorting to the courts:
When reaching the stage of resorting to the courts, some basic rules must be observed, such as:
Confirming the right in writing, as an official document proving the creditor’s right is required.
Determining the type of debt: The type of debt sought must be clearly defined, whether it is cash or property.
Repayment of the debt upon payment: The debt must be due for payment.
The debtor must be notified before taking any legal action.
After the judgment is issued, the next stage of implementing the judicial decision begins through the writ of execution, which specifies the procedures to be followed to recover the debt.
Read also: The Most Important and Common Debt Collection Problems for Companies
Conditions for an Executive Bond:
Certain conditions must be met in an executive bond, including:
The bond must be specific to a specific amount.
It must not conflict with the provisions of Islamic Sharia or public order.
The right guaranteed by the bond must be due.
The right must be established and stable.
The bond must not be subject to ordinary appeal.
In conclusion:
It can be said that collecting bad debts after an acquisition represents a strategic challenge that must be approached with caution and precision. This task requires implementing systematic plans, relying initially on amicable negotiations and attempting to reach settlement solutions that preserve the interests of the acquiring company, without resorting to legal disputes unless absolutely necessary.
So, you can benefit from our B2B services for collecting bad debts after corporate acquisitions. Contact us now!
