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.