The festive season is a time for joy and giving, but for many businesses, it also presents challenges with cash flow as customers struggle to settle their accounts. Managing overdue debts effectively during and after the Christmas period is critical for maintaining financial stability. What are the best practices for handling overdue debts, responding to excuses, and escalating action when necessary under New Zealand law?
1. Proactive Debt Management: The Pre-Holiday Checklist
Communication Is Key:
Pre-emptive Reminders: Send reminders about due invoices early in December, emphasizing the importance of payment before the holiday break.
Flexible Arrangements: Offer payment plans or early settlement discounts to encourage compliance.
Assess Your Accounts Receivable:
Prioritize high-value debts and long-overdue accounts for immediate follow-up.
Conduct credit checks on customers with large outstanding balances to gauge the risk of non-payment.
2. Handling Overdue Debts: Strategies and Excuses
Common Excuses and Responses:
“We’re waiting on payments ourselves.” - Suggest a part-payment option to reduce the balance and demonstrate goodwill.
“Our accounts team is on holiday.” - Request payment before their break or arrange for automated transfers.
“Cash flow is tight after Christmas.” - Propose a manageable payment schedule to ease the strain.
Best Practices for Follow-Up:
Maintain regular contact via phone and email.
Keep all communication professional and documented for future reference.
Consider involving a third-party debt collector if the debtor becomes unresponsive.
3. Taking Action: When to Escalate for Default
Warning Signs for Escalation:
Repeated failure to adhere to agreed payment terms.
Non-responsiveness to communication efforts.
Debtor denies liability without substantiation.
Steps for Debt Collection:
Send a Formal Demand Letter: Clearly state the overdue amount, due date, and consequences of non-payment.
Engage a Debt Collection Agency: If the debtor remains unresponsive, a collection agency can add pressure and negotiate on your behalf.
Legal Action Under the Companies Act 1993: If the debtor is a company, a statutory demand can be issued for debts over $1,000.
Issuing a Statutory Demand:
This formal notice requires payment within 15 working days.
Non-compliance allows you to apply to the High Court to liquidate the company.
Winding Up Proceedings: If granted, a liquidator is appointed and generally the company’s assets will be sold to pay creditors.
This is a last resort and should be approached with legal advice and/or by consulting an insolvency practitioner to ensure compliance with procedural requirements.
4. Post-Holiday Recovery Plan
Reassess Credit Policies: Tighten credit terms for new customers or those with a history of late payments.
Monitor Trends: Track payment patterns over time to identify seasonal risks and adjust your strategies accordingly.
Engage Professional Help Early: If payment disputes arise, consult legal professionals to mitigate risks and recover debts efficiently.
Final Thoughts
Managing overdue debts around the Christmas period requires a blend of empathy, strategy, and assertiveness. By acting promptly and adhering to best practices, businesses can safeguard cash flow and reduce the impact of defaults.
Remember, the key is to remain proactive, professional, and prepared to escalate when necessary to protect your interests. For complex cases or substantial debts, seek guidance from an insolvency practitioner, a debt recovery expert or lawyer experienced in insolvency law. We are here to help www.mvp.co.nz