Knowing the types of corporate debts is important for determining collection methods. Debt can be generally defined as a loan of funds or services from a creditor to a debtor under an agreement that specifies terms, such as the repayment date and the amount of interest or other late fees. In this article, we will review the types of debts and their collection methods.
The 4 most common types of debt among businesses:
There are many different types of debts, such as personal, commercial, real estate, and others. However, the most important types we collect at B2B Debt Collection are corporate debts, which include:
Bad Debts:
These are debts that have almost no chance of being recovered due to several factors, such as the death of the debtor without leaving enough money to repay the debt, the debtor declaring bankruptcy, or fleeing the country and not being able to be located. Companies allocate a special item in their financial statements for these debts called “Bad Debts.” The debt is recorded under this item only after all available collection methods, whether amicable or judicial, have been exhausted.
In some cases, companies take precautionary measures, such as seizing the debtor’s assets to ensure repayment. If the debtor successfully repays, this loss becomes a profit for the company.
Learn the difference between bad debts and doubtful debts and their impact on your company’s financial stability.
Doubtful debts:
Are debts that lack sufficient collateral, such as a lack of documentation or proof of the creditor’s rights or the debtor’s insufficient financial balances. In this case, the creditor reviews the debtor’s credit rating to determine their ability to obtain a new loan to meet their obligations. Common examples of this type include credit card debt, student loans, and car loans.
Revolving debt:
Are debts that are re-borrowed from the same institution after repayment, for various purposes, such as financing a new project or expanding operations. The ceilings for these debts are determined based on the borrower’s financial solvency and credit rating.
Good Debts:
Debts backed by adequate collateral, such as government bonds, owned assets, and bank accounts with steady cash flows. They are also known as secured loans due to the debtor’s good reputation for repayment. Collection in these cases is often easy and can be resolved amicably, as defaults are the result of unforeseen and unintentional circumstances.
At B2B Debt Collection, we handle various types of debts and their collection methods. Below, learn about corporate debt collection methods.
Debt Collection Methods:
There are many types of debts and their collection methods, especially when it comes to corporate debts. Collecting these debts relies on several effective methods that help recover the debts. Below, we review debt collection methods in detail to ensure the rights of creditors.
When debt payments are delayed, there are a series of measures taken, as follows:
First: Amicable Settlement
Amicable settlement is considered one of the most effective methods for debt collection due to its speed. In many cases, speed of debt collection is more important than the debt ratio for creditor companies, as debt represents a significant component of the cash flow companies need to support their production operations or pay their employees. Corporate collection departments often face difficulties in implementing these settlements for various reasons, making contracting with companies specializing in amicable collection an ideal option to ensure speedy collection and responsiveness from debtors.
At B2B Debt Collection, we always resort to this type of collection when it comes to corporate debts to preserve business relationships between creditor and debtor companies.
Second: Arbitration
Although uncommon in the field of debt collection, arbitration relies on the intervention of a neutral third party, such as a government agency or an independent collection agency, to render a judgment between the creditor and debtor. This judgment includes determining the debt’s eligibility, interest rates, value, and payment deadlines.
Third: Judicial Settlement
Judicial settlement is the most common type of debt collection. Many companies resort directly to the courts to ensure the recovery of the largest possible percentage of debts. However, this method may face some challenges, such as the length of the recovery period, depending on the judicial system in the country in question. Debtor actions may also delay the issuance or enforcement of judgments.
Using these various methods, companies can ensure more effective debt collection. The types of debts and their collection methods require careful consideration to choose the most appropriate method for each case. Below are general strategies for managing corporate debt.
8 General Debt Management Strategies You Can Use:
After a solid understanding of debt collection, when dealing with different types of debts and their collection methods, creditors face a variety of challenges. These challenges may include dealing with different types of debtors, trying to maintain business relationships with delinquent debtors, as well as the obstacles of administrative and legal procedures and the impact of debt on the company’s profitability and liquidity. Therefore, there are several strategies that can protect creditors from these obstacles, including:
Regular Communication with the Debtor:
Contact the debtor regularly and in a friendly manner to explore the possibility of reaching suitable repayment arrangements.
Offer flexible repayment plans and allow for convenient installments.
Try to understand the reasons for late repayment and work to find mutual solutions.
Use Legal Procedures with Caution:
Use legal action as a last resort after negotiation attempts have failed.
Choose appropriate measures, such as sending warnings or filing lawsuits.
Ensure that all legal procedures are properly complied with.
Debt Restructuring:
Evaluate the possibility of restructuring delinquent debts on new terms that suit the debtor.
Offer new repayment plans with grace periods and easy-to-pay installments.
Try to obtain additional collateral to ensure repayment.
Maintain accurate debtor records:
Maintain accurate and comprehensive records of all delinquent debts.
Document all communications and correspondence with debtors.
Use these records as evidence if you resort to legal action.
Study and analyze the status of each delinquent debt:
Research each delinquent debt case in depth, including the reasons for the delinquency and the circumstances surrounding the debtor. This information will help you determine the most appropriate strategy and adapt it appropriately.
Flexibility in negotiation:
Be prepared to negotiate and reach flexible repayment agreements with debtors.
This may require rescheduling debts or offering discounts to facilitate repayment.
Flexibility and understanding can lead to positive long-term results.
Cooperate with other parties:
Coordinate with any other creditors involved in the same delinquent debt situation.
Cooperation and coordination can improve your negotiating position and lead to better outcomes.
Continuous Follow-up and Monitoring:
Follow up on distressed debt cases until they are finally settled.
Monitor the implementation of repayment agreements and debtors’ compliance with the terms.
Be prepared to adapt your strategy according to developments in each case.
If the strategies used do not achieve the desired results, it may be necessary to resort to a specialist debt collection agency.
In conclusion:
By understanding the types of debts and their collection methods, companies can enhance the effectiveness of their collection operations and maintain their financial stability. For example, collecting distressed debts requires multiple, integrated strategies to ensure the desired results.
However, if the strategies used do not achieve the desired results, it may be necessary to engage a debt collection lawyer or debt collection office to leverage their legal expertise in multiple fields and at different levels of debt.
When traditional strategies fail, B2B Debt Collection is your ideal partner.
We provide debt collection services for companies, combining deep legal expertise with modern technologies to achieve fast and effective results.
Our team has extensive knowledge of the laws and regulations related to debt collection, and we believe that prevention is better than cure. Therefore, we offer specialized contract drafting services to ensure your rights are protected from the outset.
In the event of non-payment, we offer a wide range of debt collection services, including amicable collection, judicial representation, and international arbitration.
We also provide ongoing legal advice throughout the collection process to help you make the right decisions and tailor solutions for each client. Contact us to develop a collection strategy that suits your needs..
