NEWSLETTER 12/2009
Commentary
MANAGING BUSINESS RECEIVABLES - AN OVERVIEW
Proper management of receivables is an important aspect of business for any firm. It has a major effect on the financial liquidity of the enterprise, regardless of its size. Thus managing receivables requires a well-thought-out strategy, which should cover all stages of relations with customers. Implementation of the strategy will allow the company to concentrate on business development and thus achieve better results.
Specific items to pay attention to:
- Reliability of customers
Proper assessment of the risk of dealing with a customer allows a company to make an informed decision on whether products can be sold with extended payment terms, or whether to require immediate payment or advance payment. In the case of new customers, or when a large contract is involved, it is worthwhile to order a report on the other party's financial standing. This information is available for example through professional business intelligence firms operating in Poland and elsewhere in Europe, for a modest fee. If deemed necessary, various legal forms to secure payment of the receivable may be employed.
- Documentation of business relations
Proper documentation of a company's commercial relations and related receivables helps the firm collect receivables more effectively. Particular case is required when preparing contracts, which should precisely define the performance required of each party, the amount of the fee and the payment terms. It is essential that the parties to the contract be represented by authorized persons. Any amendments to the agreement should be in the form of a written annex. Legal assistance is important at the contracting stage. Unfortunately, only 3 % of businesses say that they would hire a lawyer to draft a contract.(1)
It is also crucial to remember about written documentation of contract performance, e.g. proof of delivery of goods, receipts, and acceptance protocols, which will be a valuable weapon in the event of a judicial dispute.
- Monitoring of receivables
Systematic monitoring and verification of outstanding receivables helps to limit the amount of receivables that in the future may become problem debts and have a negative impact on the firm's liquidity. This approach improves customers' payment discipline. These actions can be handled by the company's accountant or other staff assigned to this area. Outside specialists may be the best solution when the scale of operations is large.
- Out-of-court collections
Taking steps to achieve voluntary payment makes it possible for the company to clear receivables from its books without threatening the existing commercial relationship with the customer.
It may be helpful at this stage as well to retain a lawyer, whose advice and meditation skills may prove necessary when negotiating new payment terms, revising existing commercial agreements, or drafting agreements relevant to payment of overdue receivables.
- Judicial proceedings and execution
Enforcing claims in court is a complicated process.
The regulations in the Civil Procedure Code impose strict formal requirements on businesses. It is especially crucial to entrust these measures to a professional, who will advise on the documents required to bring the matter before the court and verify them from a formal legal point of view.
Based on the documents provided, the attorney (legal adviser or advocate) will draw up the statement of claim for a proceeding for an order for payment or summary proceeding, or, if necessary, a full proceeding, which is more expensive.
Once the court issues a ruling and the ruling becomes legally final, the attorney will commence execution on the judgment, which is a separate and complex issue unto itself.
Maciej Nowak
attorney-at-law
The Newsletter is published free-of-charge and is designed chiefly for clients of the law firm of Mikulski & Partners. The articles are written by lawyers at the firm but do not constitute legal advice.
1. M.Bobrowicz, Forbes (Polish edition), July 2009, p. 76.