Debt Chasing Aysun ÖZGÜN Uğur ÖZTÜRK Murat YILMAZ Ş. Burak ÇOBAN Muzaffer GÜNERİ
DEBT • The concept of debt: When You need something, you borrow it and you're in debt to the lender. When you give it back you're out of debt.
In Türkiye there is common used sentence like for debt “Borç yiğidin kamçısıdır”
History of debt • In early Greece debt was physically tied to bondage, for if one was unable to repay their debts they simply became property of the lender. • In his wisdom Solon, the great lawgiver, passed a law in 594 B.C. that outlawed debt bondage and canceled all outstanding debts. That was of course good news for those who owed money but not so for those who had lent it.
It was in the Italian banking system in the 1300's that modern lending got its start.Using a bill of exchange a bank could lend money, designate from among dozens of currencies and transport it safely over poorly guarded highways.
DEBT CHASING: Debt chasing is probably the area of business where negotiation is needed so much that it is almost a matter of routine the problem is that so often, the only excuse for lack of payment is lack of intent, and this can lead the unwary negotiator into a situation where AGGRAVATION is endemic.
Debt Collecting • Collecting debt is best done in person, your own or an agent’s. • A bad debt is no different from theft, except you know the name of the thief. • Any payment is better than none. • Collect what you can and run. • If necessary, agree for part payment in final settlement.
People never like paying bills of course and will use every opportunity to couch up the readies as late as possible but not paying bills increase the total debt…
Especially the credit card debts in Türkiye at the last years increased rapidly. Credit card users in Türkiye use cards unconsciously like the governments spendings…
In addition every lenders hates breaking off from the day to day running of business to get on the phone to those late payers. It is a fact that most business fail because they do not know to control their debtor list. So, if you are a lender how do you go about getting your payers to pay up? Much will depend on the type of debtor you’re dealing with, the size of the debt and your willingness to go to court. Assuming the debt is significant, provable and you are prepared to go to court, there are a number of options at your disposal. These options are:
DIY (do it yourself) collecting:By using credit master. In order to avoid the harms of debt-chasing, firms should facilitate effective “credit management programs”. • Using legislation: • Using a third party:The third party usually means Collecting Agents (factoring firms), Non-Court Actions, Solicitors specializing in debt collection, statutory demands and Court Actions. • Threat:It is an illegal and unethical way of debt-chasing.
Do It Yourself Collecting: • First of all, set-up a system to track outstanding invoices. Once a payment becomes due, star chasing. Identify the correct contact and issue a polite reminder letter as a simple first step. • Worth doing is drawing up a timetable detailing action you’ll do at each stage of the debt collecting process i.e. letters, pone calls. Also, record and retain all correspondence with your debtors, including fax/e-mail remainders and dates when actions are taken. If the debtor is showing signs of employing delaying tactics, try to se a date for resolution of the payment problem
Most important of all, keep a file or recording the date of each action, which individual you contacted, and the contents of any telephone conversations. Simple isn’t it? Well not quite. But it should make your life just that little bit easier. • If the payment is considerable and you fail to get any satisfaction from the debtor, consider the option of debt-chasing tactics which would be the most cost effective and profitable which to employ.
CREDIT MASTER: • Credit Master helps to pro-actively chase debts in a more focused, timely manner, which, if used correctly, will lead t improve cash flow. Companies using Credit Master have found a noticeable reduction in bad debt, through early identification and more targeted pursuit of problem accounts.
SIMPLE WAYS TO COLLECT DEBT YOURSELF: • The most proper strategy depends on the size of the debt -$31 calls for a different strategy than $1200, or $34000. • It’s different chasing an individual than chasing a company. • If it’s a company it depends on the size of the company. • It can also depend on how important you are to them.
Little debts owed by individuals:steps to follow: • Write them a letter, saying its unlike them not to pay promptly, and please could you have the money. Use a bit of same on them. • Keep phoning them, politely but firmly. • If a cheque is there (they say) but for some inventive reasons it never gets sent, say you’ll send a courier around at sme hour.
Big debts owed by individuals:steps to follow: You can try the steps used in 1 to 3 in the previous case. But don’t let to much time go by doing that. Instead’ go straight to the next step mentioned: • Call in to see them. Call in at work, or at home, or wherever you can find them. Not many people can stand the presure of a personal call. And remember, this is a big debt- one that’s important to collect. The best way is to collect it yourself.
Little debts owed by companies:steps to follow: • Make sure they have at least one letter from you, firmly but pleasantly asking for the money. • Try wearing them down with telephone calls. Phone daily, even twice a day. • Offer to send around a courier. This often breaks through their weaker excuses and exposes a realm of truth: they might tell you they’re having temporary cash-flow problems, and that the account will be paid within two weeks.
Big debts owed by companies:steps to follow: • Try steps1,2 and 3 for small debts owed y companies. But go through the steps faster. This is a big debt, after al don’t mess around too long before you…: • Go to see them. Make an appointment with the credit manager. If you get a lot of excuses just go without an appointment unannounced, and plop down in reception. Be polite and smile at everyone. Look like you’re prepared to spend the day. Take something to read, or even a laptop computer and do some work. • Sooner or later someone will see you. Ten you’ll either get a cheque or you’ll find out what you’re really up against.
TIPS FOR RUNNING DEBT COLLECTION EFFECTIVELY IN A SALES FIRM: Get Close to the Customer: Businesses must ensure they have the right individual’s name for letters and phone calls. Make ‘Credit Terms’ very clear: • Include a paragraph for the buyer to sign, agreeing to comply with stated payment terms and conditions of sale. • Stress payment terms, as a condition of sale supersedes any buyer’s terms. Send it to a named, responsible person. • It is professional, not anti-selling, to say “our business allows 30 days to pay”.
Invoice effectively: Send accurate invoices and DO INCLUDE payment terms and due date, date, delivery date and method, description, price and total payable. • Achieve Adequate Collection Coverage • Set Targets and Priorities: a company boss should make it clear to all relevant staff that THE COMPANY IS IN BUSINESS TO EARN CASH FROM CUSTOMERS and that A SALE IS NOT COMPLETE UNTILL IT IS OAID FOR! The rate of cash inflow should be reliable in line with sale made. • Use Third Parties Sooner not Later: Some customers ignore reminders and wait until they receive a significant threat; using a third party can have an activating effect. • Take he case to the Court if you cannot take your money in any way.
DIY collecting has some drawbacks such that if the debtor whom you are dealing with, is such a stubborn and hardnosed one, he/she may develop lots excuses by using his/her infinite imagination. In such a situation those sentences are likely to be pronounced: • “ I am in conference with my accountant and will ring you back” • “The cheque is on the post” Or a debtor may use his/her secretary in order to cope with the situation by making her lie as: • “Mr. Rich is on a business trip and he’s not available now”
Tips In DIY Debt Collection: • Gather/record all he information you can • Be professional at all times • Be persistent • Make personal visits • Offer alternate terms of payment • If nothing works, take the case to the court.
Collecting By Legistation: • The most common option is the warranty of execution. Here, the court gives bailiffs the power to impound goods owned by the debtor- either at his/her home or business- the subsequently being auctioned off to raise the necessary capital. • A WARNING!!!!! But as we all know, warrant if execution never helps the lender to recover all the money totally.. For ex; The 1,8 million YTL worth Mercedes car of Cem Uzan could only be sold for a price slightly above 200,000 YTL by TMSF!!!!
Alternatively, you can make a claim under a charging order, should the debtor decide to liquidate his/her financial assets. • Is, on the other hand, the debtor is a company employee, an attachment of earnings order may be enacted –in this case the debtor’s employer being instructed to deduct a portion of money from the employee’s weekly/monthly earning to cover the debt. • Worth pointing out, more generally, is that you can force your debtor into carrying out an oral examination before the court if you require further information on him/her. This may be influential in terms of how you further proceed.
Taking an unsuccessful debt collecting case to court has such a disadvantage that, however the creditor gets all his money back, most of that money is gone to court & lawyer expenses
“Dont sue george when harry owes you money” Thousands of people sue someone-or some legal structure- thats simply not involved!!! İf you are handling the legal action yourself-and thats what we are talking about in this chapter- then make sure you go after the right debtor.
İf the debtor is an individual • Just go after the person whom you lend the money. *İf the debtor is a sole trader: Just go after the person behind it *İf the debtor is a partnership: This time you are dangerous waters. There may be a thousand of partners, you should sue each of the partners
If the debtor is a trust *You sholud sue that whole long name-like “viacorp pty ltd atf james heath family trust ta j&e copywriting” • İf the debtor is a company *You can sue the company,itself.
Türkiye case: • Türkiye’s most important legal debt collecter is TMSF.
TMSF yasal olarak el koyduğu şirketlerin malvarlıklarını borçlarını karşılamak üzere satışa cıkardı:
TMSF son dönemde el koyduğu şirketlerden bazılarını borçlarını tahsil etmeyi hızlandırmak için eski sahipleriyle anlaşma imzalayarak iade etti • Burdaki amaç: borçların tam olarak geri alınamayacağından dolayı geri iadeyle şirketler üzerinden borçları tahsil etmek…
Using A Third Party • Debt Chasing & Risk Management Consulting Firms • Factoring agencies • Non court actions • Statuory demands • Solicitors specialising in debt collection • Using a private investigator
Debt Chasing & Risk Management Consulting Firms • Why? May be necessary when the firm doesn’t have a credit departmant A good “risk monitoring and credit management system” is cruical. Because you can kontrol your risk by monitoring debt chasing
Principles • Business shall be conducted so as to foster and maintain respect and confidence in the collection industry. • Laws and regulations shall be strictly observed in the name of good relations with the authorities. • Cases shall be handled speedily, professionally, efficiently and correctly. • Client contacts shall be maintained throughout case processing • Client funds shall be held in separate accounts. • Strict security shall be maintained regarding all information acquired by the collection company • The debtor's integrity shall be respected at all times.
Factorin Agencies: • Factoring agencies: Work on a no collection-no fee basis and charge 5-15 % of amonts collected, depending on complexity and volume. Good ones collect over %80 in the first month because of their third party effect and full ime effort. • Factoring: Is the selling of accounts receivable on acontract basis by the business holding them in order to obtain cash payment of the accounts before their actual due date – to an agency known as factor. The factor than assumes full responsibility for credit analysis of new accounts, payment collection and credit loses.
The result is more profit • It will be not necessary to offer incentive, discounts, etc- to collect on receivables on time.with these approaches in operation you wont need to factor or discount your invoices. Because the cheques are coming in sooner, your cash flow improves, the overdraft decreases(less interest to pay) and you have funds available for expansion.
Non court actions; include options such as negotiation, mediation,conciliation and arbitration. • Statuory demands; can be sent by tghe seller, collection agent or solicitors promising an application to court for the formal winding up of the business if payment is not made xx days. • Solicitors specialising in debt collection; issue powerful letters in a short space of time, charging a pre-aggreed fee.
Using a lawyer as a shock tactic You can try asking your lawyer to send the debtor a letter. The idea is to startle the debtor into paying. This sometimes works.
Letter example: • “we act on behalf of saldıray ltd and we are instructed that you are indebted to our client to the amount of 1200$. we advise that if the sum of 1200$ is not received by our office within fourteen days of the date here of our client will issue proceedings against you for that sum without further notice to you”
Using a private investigator • Not many people think of hiring a private investigator to help collect a debt. İf you hire one who works freelance, its not ferociously expensive. These guys can find out anything – or find anyone(if thats the problem).
Threat: • Threat is another tool for collecting debt. İt usually includes violence or physical disruption. İt is definitely not advisable, but may be used if nothing works and you cannot still get your money back…
The purpose of tactics in negotiation is to get the desired result. Debt-chasing is a difficult tactic to implemen because: *some people do not pay and never intended to *some people intended to pay but find it convenient to pay * some people do not pay because they cant pay *some people only pay if you make them pay
So every lender should consider the followings before lending • İt is advisable for the lender to check the credit worthiness of the debtor, since non-payment could be an indcation of financial difficulty. * tighten p your credit policy. Check on people and companies before you give them credit. Also, get as much as you can in writing about your aggreements, delivery terms etc…
* before you start chasing a debtor using legal proceedings, find out if hes worth chasing. That is, find out if you ll get something at the end of it all. *be ready to compromise and negotiate at any stage… *collect large debts by sending someone around personally. Do it yourself if you have the time… *if you still get a stream of hard to collect debts then find a good debt collection agency and sing up with them…
* keep in mind what a private investigator can do for you. Sometimes the easiest way to get a cheque is to ave one of these gentlemen help you… *if the debtor is using a lawyer, then use a lawyer too…
İt is very rediculuous for a smart lender chasing the debt with lots of summons on his hand when there is nothing left from the ebtor and nothings there for example on an individual debtor you should get information like the following; * driving license number and date of birth * name of employer and previous employer *adress, adress before.. *credit services banks etc that have beeen enquiring about him…