Implementing an effective debt collection procedure is essential for any company, whatever its size or sector of activity. Indeed, debt collection is directly linked to customer risk management, and therefore to cash flow management. There are various collection procedures, both amicable and legal. In all cases, companies need to follow a number of steps to optimize their internal or external debt collection procedures. In this comprehensive guide to debt collection procedures, we outline the steps you need to take to ensure successful debt recovery.
Step 1: Initial assessment of the collection file
The first thing to do when faced with an unpaid invoice is to carry out an assessment of the collection file.
This preliminary step in the collection procedure enables us to determine our collection objectives, as well as to estimate the real risk of loss for the company.
The initial assessment of the collection file includes a phase of gathering information about the debtor. For example, you can consult the Bodacc to check that the debtor is not subject to bankruptcy proceedings (sauvegarde, redressement or liquidation judiciaire), in which case you must declare your claim to the appointed judicial representative. You can also check Sirene notices to determine your debtor’s solvency.
What’s more, you can consult this customer’s history in your books. Is he in the habit of paying his invoices late, or is this a one-off?
Secondly, you need to analyze the debt to be collected. In fact, before implementing a collection procedure in the strict sense of the term, you need to check that the company is actually entitled to do so.
To do this, it is necessary to ensure that the claim is :
- certain ;
- liquid ;
- required ;
- and non-prescribed.
Stage 2: Preparing documents and preliminary actions
Before initiating debt collection proceedings as such, it is also necessary to prepare the relevant documents and carry out certain preliminary actions.
For example, it’s a good idea to check that you have all the supporting documents you need to prove the existence of the debt. This may include a :
- contract ;
- signed quotation ;
- a signed order form ;
- an invoice ;
- etc.
Depending on the customer’s risk profile, the amount outstanding, and your business relations with him, you can already plan the measures you need to put in place to minimize risk. For example, you can contact the sales team to reduce payment terms for future orders, or even block new orders to this company until the debt has been settled.
Finally, you can prepare a formal letter requesting payment.
Step 3: Communication with the debtor
Now that you’ve properly prepared your collection file, the next step in the debt collection procedure is to contact the debtor.
To make contact with the debtor, there are several collection techniques at your disposal:
- telephone reminders ;
- e-mail reminders that the invoice is due for payment;
- dunning letters sent by post or e-mail.
Would you like to send a reminder letter to your creditor? Download our dunning letter template, fill in the essential information and send your letter.
The aim of all these measures is to maintain communication with the debtor, in order to find an amicable solution and avoid having to resort to legal proceedings. This can take various forms:
- immediate and full payment of the invoice;
- negotiation of additional payment terms;
- setting up a repayment plan.
In the event of an amicable settlement agreement, it is preferable to draw up a written document formalizing the commitments of the debtor and the creditor.
If the debtor does not respond to reminders, or does not respect the amicable agreement, the creditor can send a letter of formal notice. This registered letter with acknowledgement of receipt is the starting point for calculating interest and late payment penalties. If the situation is not rectified within the allotted time (15 days minimum), the creditor may initiate legal collection proceedings against the debtor.
The formal notice is therefore the pivotal stage between amicable and enforced debt collection.
Step 4:# Implementation of legal collection measures
If the amicable collection phase fails, the creditor company can take legal action by applying to the court to obtain a writ of execution for payment of its debt. This is known as forced or judicial collection.
Depending on the amount of the debt, but also on the situation, several forced collection procedures are possible.
There are three relatively quick and inexpensive judicial collection procedures:
- injunction to pay in order to obtain a writ of execution;
- simplified collection procedure (only for disputes involving sums of less than 5,000 euros);
- provisional injunction.
It is also possible to proceed with a summons for payment on the merits, i.e. to bring the dispute before a judge in order to open a trial. This procedure is longer and more costly. For this reason, it is generally reserved for the most complex cases or those involving large sums.
Whatever forced collection procedure you initiate, the objective is the same: to obtain a writ of execution. This is an order or judgment allowing the creditor to have the court decision enforced by a judicial commissioner (formerly a bailiff). In this way, if the debtor fails to pay after being condemned by the judge, the creditor can ask for seizures to be carried out.
This has the advantage of increasing the chances of recovering the debt.
Step 5: Follow-up and closure
The final stage of a collection procedure is the follow-up of debt payments.
If, following the reminder, the debtor has undertaken to make payment immediately, you should check your bank account in the days that follow. Similarly, if an out-of-court settlement has been reached, you should follow up the case to ensure that the instalments are paid on time.
In addition, in the event of seizure by a judicial commissioner or bailiff, you must follow up the case with him/her, and in particular, the receipt of payments.
Monitoring the collection procedure also includes reconciling the amounts collected with the receivables. For this, the use of collection software with accounting lettering, such as CashOnTime, can save you time.
Finally, once the invoice has been collected in full, the collection file must be closed.
Conclusion
In summary, the main steps to follow for a debt collection procedure are :
- initial assessment of the collection file;
- document preparation and preliminary actions ;
- communication with the debtor ;
- implementation of legal collection measures; if necessary ;
- monitoring and closing collections.
In view of these factors, it is clear that accurate assessment and proper documentation of the case are essential to the success of the collection procedure. The same applies to communication, which must be proactive in order to encourage amicable debt collection agreements. However, if necessary, it is possible to turn to a forced or legal collection procedure. In all cases, rigorous monitoring of the collection procedure is the key to optimal management of outstanding debts.
Want to know how CashOnTime can help you save time?
