Converting overdue receivables to cash is one of the most common problems seen in many businesses. When I say overdue receivables, typically I mean:
i) overdue for more than 180 days, or
ii) when your Auditors are going to or already requesting you to provide for doubtful debts.
Providing for doubtful debts does not take away your ability to recover them, it is merely an accounting treatment. In such cases, you can make an unspecified provision to comply with the Accounting Standards and simultaneously take actions to recover the same.
Some of the tools and techniques to deal with overdue receivables are as follows:
1. New reporting requirement for amount payable to MSMEs: One of the recent provision of the Companies Act provides that every company who has any amount payable to MSME’s which is outstanding for more than 45 days, has to report it to the Registrar of Companies every six months. To avail this benefit, eligible companies need to register themselves as MSMEs and provide its Registration Certificate to the company and use this provision to tell the debtors that they can’t delay your invoices.
2. Insolvency and Bankruptcy Code (IBC): You may approach an IBC professional to use their services to send a notice to the debtor who is holding up your payment and there is a high possibility that the he will turn up because otherwise, the penal provisions of IBC can be quite damaging to this guy. If there are other such creditors like you who are not been paid by this guy then you can even seek winding up of company provided it is done as per the provisions of the law. So, IBC can be another tool for recovery but understand that it is sort of a Brahmastra and therefore you will have to use them sparingly. But, usually, when an IBC professional writes a letter, what we hear by talking to all these IBC professionals is that most of the time the other party opt for an out of court settlement.
3. Installment: I would strongly recommend offering an installment plan if your invoices are large enough to pay in one installment. Installment can be with or without interest and you can always choose how much interest you want to apply. So, instead of taking a brutal action of going in for litigation, you can look at discussing with the other guy about this easy exit.
4. Interest Invoice: Despite of having it in the contractual terms, more often than not company doesn’t send the interest invoice to its debtors. Interest is compensatory in nature for the delay in making payment and it must be invoked. You got to send the interest invoice along GST because the interest will be treated as a trade income. Although, sending an interest invoice is another way of exerting pressure to release the payment, you may back it up with an installment option.
5. Barter: One other thing that you can think of is a barter system. See if you can utilize something from the company and you can monetize that. If The company produces certain articles or certain items that is of interest to you, you can buy them or if you believe that you will be able to monetize that article, you can ask him to supply that article or that kind of a service.
6. Credit Note: In situations where the above tools cannot be used, it may be worthwhile in closing the chapter by giving a credit note so that you at least you get the GST credit which you must have paid earlier and minimise the loss.
Two important things which anyways you need to ensure are:
a. Whether the company has utilized your GST that you have given? and
b. If your invoice is subject to TDS, whether the other company has given the TDS credit in its quarterly returns?
If answer to the above two are positive, it means that he has already accepted your invoice and the liability to pay it. This will stand by in the IBC platform because having taken full credit of your GST, having paid full TDS and having accepted full liability, it will be very difficult for the company to provide a valid justification for non-payment of dues. So, there are things that you need to build up. You need to build up your arguments and then you need to act. At the end, you got to apply the pressure and at the same time you also need to give him exit options. When something becomes overdue, chasing that money in a finite amount of time that is available with the company is important yet challenging. The company can spend this time on opportunities to earn new money or opportunities in chasing old money. You got to find out which one is going to be more appropriate for you.
Hoping for quick recovery!