The business of extending services, goods or even finance to your customers runs with the risk of delayed recoveries and bad debts. There rarely exist debtors who pay on time. Most of the time, they will seek extensions to pay the debts and even some may delay for months.
Receiving payments on time is a tedious job and it requires lots of follow-up for realising on time. In Spite of these rigorous follow ups, you may experience failure in collecting the dues as the intent of debtors have gone bad or they are just prioritising other liabilities over your payments.
The trade receivables when delayed for several months are ultimately accounted as bad debts and have a negative impact on business, balance sheet and even the goodwill of the business.
But why to book bad debts when you can recover your money and enjoy the cash inflow?
There are several remedies available to choose from depending upon different businesses/ trade receivables of different entities. To pick one , you must be aware of the applicability and requirements of each types of recovery remedies:
- Recovery under Order 37 of the CPC: Where there is admission of debt by the debtor suit under Order 37 is the perfect choice of remedy. It can be filed for bill of exchange, hundies, promissory notes and contracts, enactments, guarantees of specified nature. It is a summary procedure which means it ensures expeditious disposal. It ensures that the defendant does not prolong the litigation and prevent the plaintiff from obtaining a decree by raising untenable and frivolous defences.
- Under the MSMED Act: This method is suitable for MSME registered entities. In case the buyer fails to repay the MSME supplier on the agreed date or within 45 days of supplying the goods/ service, you can approach MSEFC for claiming the dues that too in at least Icing on the cake is – Section 16 of MSMED Act provides for compound interest on delayed payments at the rate of 3 times the bank rate notified by RBI.
- Commercial Suit under Commercial Court Act, 2015: For those who hate time taking recovery processes, commercial suits are a boon. The recovery process traditionally suffers from the vice of long adjudicatory process and delays but under the aforesaid act, position has changed substantially as it ensures timely completion of adjudicatory processes. You can achieve a speedy resolution by observing provisions of the Commercial Courts Act clubbed with CPC.
- Recovery of cheque bounce amount: Instances of delayed payments due to cheque bounce can be dealt effectively via proceedings under Negotiable instruments act. As the proceedings are criminal in nature, the debtor longs to settle faster and thus you can prevent yourself from investing voluminous time.
- Arbitration proceedings to mutually settle and recover your dues: Arbitration is the best remedy for those who fear hampering sound relationships with their existing clients. Arbitration can be exercised when there exists an arbitration clause in your invoice, agreement or in Purchase order of debtor. It involves settlement on mutual discussions and agreement. The issues are amicably resolved and you can also recover the court fee and litigation free from debtors under this method.
- Insolvency and Bankruptcy: The I & B Code, 2016 enables you to recover financial as well as operational debt in a time bound manner where it seems that the debtor is unable to meet its liabilities. The code is strict w.r.t. timelines and thus early disposal is the unmatched benefit that one can derive by availing remedy under I & B Code, 2016.
“Let not the debtors decide the fate of your business. Act in time to prevent business failure.”