Debtor management: what you need to know

What is a debtor

A debtor (account receivable) is a customer or client who has received an invoice from you, but has not yet paid. This could be a private individual or a business. As long as the invoice remains unpaid, the customer is a debtor. 

Debtor and creditor: what’s the difference?

A debtor still owes you money. A creditor is a supplier, organisation or person to whom you still owe money.

Debtors fall under assets on your balance sheet. Creditors are listed under debts: liabilities.

Why are accounts receivable important for your business?

Accounts receivable affect your cash flow. This is the money your business takes in and spends. If customers pay their invoices on time, you have more money available to pay your bills, grow your business and make investments.

Credit risk

Overdue invoices can cause problems. A customer may fail to pay an invoice or pay it late. This is known as credit risk. The higher the number of outstanding invoices, the more it affects your day-to-day business operations. That is why it is important to have a clear overview of your accounts receivable.

What is debtor management?

Debtor management, or credit control, is everything you do to get your clients and customers to pay their invoice as soon as possible. Effective credit management helps you keep track of things and reduces the risk of problems.

This includes, amongst other things, sending invoices, monitoring payment deadlines, and sending payment reminders.

What should you do if a customer does not pay?

If a customer does not pay on time, you should send a payment reminder. Often, a friendly reminder is enough. If the customer does not respond, you should send a formal reminder. This makes it clear that the payment is still outstanding. If payment is still not received, you can engage a debt collecting agency.

If the customer still has not paid, you can take legal action, such as calling in a bailiff or taking court proceedings.

Accounts receivable financing: faster cash flow and less risk

Do you regularly have outstanding invoices? If so, there are various options available to help you receive payment more quickly or minimise your risks.

Factoring

Factoring is when a factoring company, also known as a factor, takes over your outstanding invoices. You immediately receive a percentage of the outstanding amount. The factoring company collects the invoice amount from your clients. The advantage of factoring is that your money that is immediately available for spending, improving your liquidity.

Invoice financing

With invoice financing, also known as reverse factoring, your client approves the invoice first. You are then usually paid by the factor within a few days. The factor collects the payment for the invoice from your customer. 

Credit insurance or debtor insurance

If you take credit insurance, your insurance company will pay the amount of the invoice when your client is unable to pay. For example, if your client goes bankrupt. This reduces the risk of unpaid invoices. Credit insurance is also called debtor insurance. 

What if your customer is having financial difficulties?

If your customer is having financial difficulties, it does not mean automatically mean you will not get your money. The options available to you depend on your customer’s situation.

WHOA

Does a client owe you money and is facing bankruptcy? If so, a WHOA process could be a solution for your client. WHOA stands for Wet Homologatie Onderhands Akkoord (the Court Approval of a Private Composition (Prevention of Insolvency) Act). This scheme allows debts to be dealt with without a business going into immediate bankruptcy. For creditors, this is often more favourable than bankruptcy.

Debt restructuring

Sometimes your client may end up in a debt restructuring process. During such a process, agreements are made regarding the repayment of debts. As a creditor, you may only recover part of your money. For private individuals and sole proprietorships, debt restructuring is possible via statutory debt restructuring (Wsnp). This scheme does not apply to BVs.

Bankruptcy

If WHOA is not an option and your client is in such deep trouble that they cannot pay your invoice, you can file for their bankruptcy. A minimum of 2 creditors are needed to do this. If your client has already been declared bankrupt, you can submit your clearly defined claim to the trustee (curator). This is called 'filing for verification' (indienen ter verificatie).

How to manage outstanding invoices effectively

Do you want to get a better handle on outstanding invoices? Then start by establishing clear payment arrangements. Send invoices on time and do not wait too long to send a reminder. This will give you peace of mind and a clear overview.