Why the delay of receivables occurs

Есть русскоязычный оригинал этой статьи

It would seem that the answer to this question is simple — the debtor did not pay, or who received an advance payment did not deliver the goods or did not render a service. But these are visible manifestations of various causes, the prevention of which will allow to avoid the delay in the repayment of receivables.

What to consider to prevent debtors from late payments

Even if the debtor is a legal entity, it is people that cause the delay in payments. To simplify the summary, we will not divide the debtors into physical and legal entities, and we will conditionally assume that your company has those and / or other of them. Therefore, if any of them are not among your debtors, then you are free from taking into account certain risk factors for delay.

Delayed actions or inaction of people most often occur for the following reasons:

  • No money for payment, or there is no possibility of proper delivery of goods/ services. More precisely, it is the inability of the representatives of the debtor or their lack of planning for the fulfillment of obligations. Rarely — the consequences of external adverse or force majeure circumstances;
  • Forgetfulness of a particular person, often broader in meaning — disregard for the performance of obligations;
  • Cowardice of the debtor’s employee, who is afraid to remind the authorities of the need to pay;
  • The benefit to the debtor from the use of relatively cheap lender funds;
  • Deliberate delay in order to satisfy an instinctive need by someone to show dominance (for example, demonstrating the ability to “punish and pardon”, arbitrarily deciding to pay / not pay);
  • Revenge for the alleged or actual transgression of the creditor’s representative;
  • Mercantile or emotional desire of a representative of a debtor enterprise to spoil relations with a creditor enterprise in order to replace it with a “friendly” another supplier of goods and / or services;
  • The decision maker to pay / not to pay submitted to his own emotional decision — “not to pay (not to deliver) now”;
  • Fictitious need to show consistency in actions, even realizing one’s own wrong, and the absence of any valid reasons for not fulfilling one’s obligations;
  • Deliberate financial damage to the lender.

The list of reasons can be continued. As in the above cases, almost all of them are not related to the real possibility of paying off the debt. This means that almost all the “tales of hardship” used by debtors are lies. This statement could be easily verified, for example, in the pre-New Year season. If your debtors order supposedly advertising souvenirs, in particular, never paying off or selling calendars with their logo, or arranging a corporate party whose value is many times higher than the debt to your enterprise, then the honesty of the one making excuses will become evident to you. Why not take a walk at the expense of the credulous compassionate lenders.

Enemy within

But not only the debtors and / or their representatives give rise to the causes of overdue receivables. Individual creditors and / or representatives (employees) of crediting legal entities often become the culprits of late payments from debtors.

The list of reasons for their actions and inactions is also wide. It can be:

  • shyness;
  • fear to appear mercantile;
  • fear of offending the debtor or his representative with a reminder of the obligation that he allegedly performed, if he could;
  • lack of basic economic knowledge and, therefore, an understanding of the consequences of non-reception of debt;
  • lack of knowledge of what and how to do to claim debt, often aggravated by the fear that the boss and colleagues will find it out;
  • underestimation or negative attitude to the goods /services of their own enterprise (it is a shame to demand money for low-quality goods /services);
  • a sense of guilt imposed by debtors for an incident;
  • gullibility to the «fairy tales» told by the debtors;
  • desire to punish their own employer;
  • inappropriate customer focus;
  • laziness;
  • irresponsibility;
  • personal material interest stemming from collusion with the debtor.

These and other reasons paralyze the recovery of debts, which debtors enjoy to the full (more in the articles «Client Orientation. Business Myths, Devouring the Money of Your Enterprises» and «„Top performance” when managing Customer focus».

***

Unfortunately, all these reasons are natural. They are caused by human nature. Slightly greater than that of other living beings, the rationality of people does not negate our subordination to natural instincts. Nature does not allow payments for something between living beings. We (the people) have no biological instinct forcing us to pay the debt. Although each person has his own set of social needs, often including the need not to have debts, nature is stronger. After all, by not paying up the debt, and by using other people’s means, it is easier for a person to fulfill the instinctive needs for self-preservation, the transfer of his genome to future generations and dominance.

To force a person to comply with social norms, it is necessary to create conditions in which proper fulfillment of obligations to other people (for example, representatives of the creditor’s enterprise) is more beneficial for him than to recklessly follow instinctive needs. One of these conditions is the fear of punishment (losses in the form of fines and additional costs), which is more weighty than the financial benefit from the use of other people’s resources or emotional satisfaction from their willful retention.

The employees (representatives of creditors) must also be forced to claim their due. They also must be placed in conditions where their personal losses from non-fulfillment of their duties exceed the psychological and /or emotional, and even material, benefits from evading the collection of debts for the employer.

Methods and means for creating such conditions are known. They have been used by humanity for millions of years since our ancestors began to live in large communities. 

Take governments as an example

All governments are creditors in relation to their citizens and legal entities within their jurisdiction. The delay in tax payments is analogous to the delay in payments between enterprises and between individuals and legal entities.

When the taxpayer does not pay on time to the government, and becomes an overdue debtor, the state representatives get excited and take the actions stipulated by regulatory acts. They persistently and categorically demand to pay, not forgetting the accrual of penalties and fines. They use all the allowed means at their disposal: from writing an angry demanding document to enforced arrest and bringing the tax debtor to many years of criminal and painful administrative responsibility.

Governments have normative and instructive documents prescribing civil servants how to reclaim overdue debts of “debtors” and send them to the treasury. Governments have a formalized “business processes” (procedural norms) that allow them to take away money that was not paid on time.

Governments have laws that prevent the resistance of debtors. And if the resistance is still put up, then additional punitive measures for such a malicious non-payer are already prepared.

Of course, what is allowed to Jupiter is not allowed to the bull. You should not independently (without proper involvement of the government) use armed and other violent measures of influence on your debtors. States reasonably reserve this monopoly.

Government representatives are people too. Each of them must also pay taxes on time in order not to be “pressured” by colleagues. They are aware of the severity of the measures applied to overdue debtors (taxpayers). They know, or correctly assume, that one or another delay was not due to the debtor’s evil intent, but due to some circumstances that prevented payment. But they have formalized rules of compulsory actions, unfulfillment of which entails inevitable painful punishment by their employer (the government). These rules are sufficiently strict and inevitable so that the tax collectors do not have a compassion and inappropriate customer focus accompanied by getting into details of the difficult circumstances of the debtors. The government rigorously demanding money, the collection of which it has erected into a law.

Likewise, the enterprises have the right to firmly demand repayment of debts to them.

 What exactly shouldn’t we take as an example from the governments

No matter how extensive and carefully developed tax legislation is, it cannot cover all possible aspects of life. It cannot overcome many natural economic contradictions that affect the calculation of the taxable base. Therefore, there are and will be provisions in the legislation subjected to discrepancies, that taxpayers to will exploit in their own interests. Tax laws also contain “traps”, laid down for catching inattentive taxpayers in order to increase the income from them in the form of fines and penalties. This causes disputes between fiscal authorities and fighting them off “debtors”, which taxpayers sometimes win in arbitration.

You do not need to create a disputable situation with debtors. You can lose the argument. Therefore, relations with them should be unambiguous, understandable, so that if a counterparty violates obligations, you could, if necessary, win over the power of the government. Usually, in such a relationship, the guilty counterparties prefer to settle the debt and penalties out of court. At the same time this allows, as a rule, to maintain good working relationships with them.

Read more about establishing such relationships in the articles “Contract as a tool to increase sales” and «How to protect yourself from unfair actions of the counterparty«.

What needs to be done to effectively claim the delayed receivables

Although you do not have the rights and tools that belong to the prerogative of governments (in particular, you do not have access to the bank accounts of debtors, the armed forces and the penitentiary system), you can make all legal preparations to turn the government’s power on unintelligible dishonest debtors if necessary.

To do so, you need to create a documentary base of interaction with counterparties that does not infringe upon their interests in strict compliance with your own. You also need management documents (regulations, agreements, form templates, instructions, etc.) to ensure that your employees comply with the measures that either prevent occurrence of delayed receivables or allow to claim and receive the payment.

This method should provide for legitimate, rigorous, inevitable, one might say, ruthless behavior of employees in relation to the debtors who have delayed the payment. After all, the fact that a delayed receivable has appeared means that you have fulfilled your obligation and are entitled to demand that the counterparty fulfill its obligations. The method should include preventive measures to avoid late payments. For example, a timely, properly executed reminder to the debtor will push him to fulfill his obligations on time.

Your employees are people as well as the tax inspectors. They can also claim the debt, albeit in a limited legal framework. If they fail to do that by themselves, then, working in accordance with the method, they will inevitably create the necessary and sufficient documentary base, the submission of which to the arbitration court will allow the state to engage in the implementation of your legitimate and proven requirements.

How to develop and implement such a method is described in detail in the books “Frankly speaking about enterprise management” and «Biorobotization of employees«. The second book gives an example of a technological instruction (regulation), including the steps that should be taken by an employee to solve the problem of claiming delayed payment of receivables.

***

You have a choice. You can develop and implement a method preventing the occurrence and allowing to claim the overdue receivables, thus minimizing losses to the level of debts of truly insolvent debtors. Also you can do nothing, half-measures will not help. Delay payment of receivables will continue to grow, as unscrupulous debtors will use your weakness. And you will only have to hope for the good faith, diligence and rejuvenation of representatives of a biological species flattering itself with the name “Homo sapiens”. So, the choice is yours…

In addition, I recommend that you use the management methods and means described in the manuals “Methods of real employee management. Why, how and what to manage » and «Technology of  conflictless prevention of the occurrence and getting of overdue receivables«.

Good luck to you in ensuring the prevention and getting of overdue receivables!

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