What are unpaid debts?

Arrearages are sums of money that are not paid on time by a debtor to a creditor. Unpaid debts can include invoices, loans, etc. Unpaid debts can result in serious financial and legal consequences for the debtor, such as late payment penalties, default interest or a poor credit rating.

How to manage unpaid debts?

Send payment reminders

Sending friendly payment reminders to late-paying customers, reminding them of the due date and potential consequences, can help a business better manage overdue payments

Set up a repayment plan

Offering a repayment plan to customers having difficulty repaying debt can help avoid late payments in the future.

Negotiate

If a company believes that a customer will not be able to repay their debt, it can negotiate an amicable arrangement to reduce the debt.

Recover debts

In the event that payment reminders and repayment plans fail, a business can hire a debt collection company with the aim of recovering amounts owed.

Prosecute legally

Finally, it is possible to take legal action to recover unpaid debts. However, this step is long and expensive so it is better to try the previous options before going to court.

What are the risks linked to unpaid debts?

The risks associated with unpaid debts are multiple: a company can lose income, encounter difficulties in repaying debts and the additional costs linked to pursuing unpaid payments, lose its reputation with current customers, potential customers and creditors. In the most extreme cases, unpaid debts can even lead to the bankruptcy of the company.

How to avoid unpaid debts?

There are several ways to avoid unpaid debts:

• First, a company can check the creditworthiness of a customer before selling them products or services,
• A company can also request a deposit or payment upon ordering,
• A company can also set certain payment terms and have them signed by the customer,
• Reminding customers of upcoming payment deadlines is also a good way to avoid unpaid bills,
• Pay attention to credit relations with customers, try to resolve payment problems quickly…
• A company can also cover its risks by considering the use of payment guarantees or credit insurance,
• Act quickly with a debt collection company if the customer does not pay.