Stages and ways of working with accounts receivable in order to prevent risks

Each enterprise undertaking an economic activity keeps scores with suppliers and buyers, customers and contractors, tax authorities, shareholders, banks, employees, sundry debtors.

Accounts receivable are thought of as indebtedness owed by enterprises, employees, natural persons to the company. It is disclosed in the balance sheet.

Accounts receivable are considered by law to be in the inextricable connection with the notion “liability”. According to clause 1 article 307 of the Civil Code of the Russian Federation “one entity (debtor) is liable to perform a certain act by liability to the advantage of another entity (creditor), such as:  to dispose property, execute a piece of work, render a service, contribute to joint activity, pay money etc. or to refrain from performing a certain activity, however the creditor has a right to call on a debtor for discharge of duty”.

Some analysts take accounts receivable as a credit product. They consider disposal of property or monetary assets as investments in client which as a result lead to profit-making. Under such kind of investment activities the business should be secured by measures on management or mitigation of risk of monetary assets non-repayment.

Dealing with accounts receivable may be carried out in several stages. Sequence, methods and content of work on negotiation of accounts receivable differ on each stage and will depend on existing situation as well as the priority of encountered tasks solution.

1 stage. Basic dealings with the counteragent as a future partner. Conclusion of a contract.

On this stage it is necessary to collect the data about the counteragent, including query of duplicate documents specified by statutory and regulatory enactments; to examine them; to inspect the counteragent for legality of operation, compatibility of practical activities with declared types of activities under registration, financial solvency, ability to meet the contract obligations, to overcome insignificant monetary difficulties. It is essential to draw up a contract wisely, covering the motivation of client for timely repayment of money, possibility of delay in payment upon written approval, punitive sanctions for untimely payment for products, works and services, penalty for use of another’s monetary assets. It is also a good practice to determine the warranty liabilities and to insure the risk of non-payment by counteragent if required.

2 stage. Control for fulfilment of contract terms.  Operative administration of accounts receivable.

To keep track of payment terms and to remind the counteragent about the payment dates if required; to control the availability and accuracy of basic documents execution; to charge penalties and fines for delay in payments timely; to keep track of the current counteragent’s solvency, evidences of financial situation worsening and pre-bankruptcy introduction. To classify the client by the extent of risk if required; to coordinate and to sign an additional agreement on delay of payment or on commercial credit, having determine the credit limit, to make other arrangements  for purposes of control.

3 stage. Working with counteragent having a past-due debt.

To suspend supply of products, execution of works and services. To find out the causes of accounts receivable delay. If the fact is a delay, to make sure of the availability of documentary evidence; to get the reliable data on financial ability of counteragent-debtor; to conduct negotiations on repayment of the past-due debt, to shape a plan on cancellation of debt or to carry out debt restructuring or remission of certain debt part. To decide whether to work or not with the counteragent-debtor, following the results of debt repayment. 

4 stage. Repayment of debt through court action.

On the ground of continuous problems with debt repayment to come to a decision on the following steps: to file a claim in court stating relevant requirements or to bring a court action for adjudication of bankruptcy of the counteragent-debtor; to call upon an occurrence of an insured event; to assign a claim (cession); to transfer a debt on a solvent debtor; to pass a task of debt repayment on outsourcing.

Information and analytical system Globas-i is a reliable assistant throughout all the stages of working with accounts receivable. It helps to inspect the counteragents, to monitor clients and partners, to track the trends of solvency worsening and introduction of pre-bankruptcy evidences, to investigate arbitral process of going through the bankruptcy procedure, to control the current situation on termination of enforcement proceedings. 

The pledge legislation has significantly changed

Presently, since the lapse of the Law of the Russian Federation «On pledges» of May 29, 1992 No. 2872-1 (as amended on 06.12.2011, with the Amendments and Additions of January 1, 2013) on July 1, 2014 basic standards on pledge are contained in articles 334 - 358.18 of The Civil Code of the Russian Federation (part one) of November 30, 1994 No. 51-FZ (as amended on 31.01.2016) and Federal Law of 16.07.1998 No. 102-FZ (as amended on 05.10.2015) «On hypothecation (mortgage)».

Talking about general innovations, experts note that the pledge is considered as a burden, not as contractual arrangements as it was before.

Now the pledge of personal rights is specified in 8 articles of The Civil Code and 6 articles are devoted to the pledge of rights under a bank account agreement. Handling procedures of the pledge of rights under a bank account agreement are significantly simplified and the efficiency of the pledge as provisional measure was increased.

To the list of regulations for pledge of inventory and pledge of things in a pawnshop the following statements were added: statements on pledge of rights of corporate members, pledge of securities and pledge of exclusionary rights.

Now the change of physical or legal condition of the pledged item doesn’t influence on the pledge. The subject of the pledge can be the property and rights, which are planned to acquire by the pledger in the future. Besides, the pledge value can remain unchanged regardless of the market situation unless otherwise is prescribed by the pledge agreement.

Requirements to the form and terms of the pledge agreement are significantly simplified. To specify the subject of the pledge, content, size and terms of fulfillment of the obligation is not mandatory now. It is possible, if the agreement includes the references to the document in which the obligation was created.

The list of cases, requiring mandatory state registration of a pledge, was expanded. For example, registration of the pledge of property, the rights on which are the subject to state registration, i.e. hypothecation, is mandatory now. Registration of the pledge of participants’ rights in limited liability company, pledge of securities and the pledge of rights under a bank account agreement is also mandatory now.

Finally, the Registry of notifications on a pledge of movable property was created and successfully operates. The Registry maintenance is regulated by the Federal Law «On Foundations of the legislation on the Notary Service» (approved by Supreme Court Of The Russian Federation on 11.02.1993 № 4462-1) (as amended on 29.12.2015) (with the Amendments and Additions, which came into force on 01.01.2016). The implementation of voluntary registration of movable property pledges allows to securely protect the rights of a mortgagee, as well as third parties.