A debtor is a customer or client who has received an invoice from you, but has not yet paid. Debtors (accounts receivable) fall under assets on your balance sheet. The debtor’s counterpart is a creditor. A creditor is a company, institution, or person whose invoice you still need to pay. On your balance sheet, creditors are listed under debts: liabilities.
Debtor management, or credit control, is everything you do to get your clients and customers to pay their invoice as soon as possible. For the cash flow of your company, it is important to keep the item ‘debtors’ on your balance sheet as low as possible compared to your turnover. You then have more money available to pay your costs. Debtor risk is the risk of your debtor not paying their bill (on time).
Debtor management literally means managing your debtors. Good debtor management helps you to get your money (on time) and thus directly affects your cash flow. Debtor management starts before you enter into an agreement with your customer and ends when the invoice is paid.
Ensure that your clients and customers pay on time
The following tips will help you ensure that your clients and/or customers pay on time:
Credit check your clients and customers
Check the creditworthiness and payment behaviour of potential clients in advance. Are your clients mainly entrepreneurs? Credit rating agencies Dun & Bradstreet and Graydon provide targeted business information. Check in the Netherlands Chamber of Commerce KVK Business Register (in Dutch) whether there is a bankruptcy or suspension of payment. Then you know if you are doing business with a party that has no financial problems.
If you mainly serve consumers, you can ask for a ‘Personal Inspection’ ('Eigen Inzage') from the National Credit Register ('Bureau Krediet Registratie', BKR). This register does not include tax debts. It does give you an indication of the customer's financial situation and whether there are any problems that could lead to non-payment of your invoice.
Agree on a payment term
Agree on the payment term in advance. The payment term is the period within which the total amount of the invoice must be paid. A payment term of 30 days is common for companies. The maximum legal term of payment is 60 days for companies and 30 days for the government. State the payment term in your general terms and conditions, the contract, and on your invoice.
Large companies must pay SMEs within 30 days
Since 1 July 2022, a new law halved the maximum statutory payment term for large companies who work with SMEs. Their maximum payment term will be reduced from 60 days to 30 days.
This ensures smaller businesses receive their money faster. Fewer outstanding invoices mean you can immediately put the money back into your business. Prepare for the new law with these two tips:
- Classify your customers by size. Find out which customers will have to pay your invoices faster because they fall under the heading of 'large companies'. Large companies have a minimum of 250 employees or more than €50 million turnover and a balance sheet total higher than €43 million. Your customer can give you more information about this. Information about the number of persons employed by a company can be found at KVK.
- Adjust your terms and conditions and contracts. Adjust the payment term for large companies in your general terms and conditions and contracts. Communicate this to your customer before sending the invoice. Have you filed your general terms and conditions with KVK? Adjust these as well. Note: large companies usually work with purchasing conditions. Ask your customer for adjusted purchasing conditions.
Claim retention of title
A retention of title means that you remain the owner of the products delivered until the customer has paid. If the customer does not pay, you can reclaim the products. You must claim a retention of title in your general terms and conditions.
Consider payments in advance
If your customer pays in advance, your risk is almost zero. For business clients, there are no ground rules for prepayment. However, you can, for example, offer an attractive discount if your client pays in advance.
Do you deliver a product to consumers? Then your customer may pay a maximum of 50% in advance. It is not legal to ask for more. An advance payment or deposit must be included in the sales contract or general terms and conditions. Online shops are an exception. If your customer chooses to pay via iDEAL, then full prepayment is permitted. Prepayment is not customary if you provide a service to consumers. Do you deliver a product in addition to a service? Then you can ask your customer for a maximum of 50% deposit.
Make agreements with your customer about the invoice:
- Establish a possible discount for prompt payment (dynamic discounting).
- Find out what requirements your customer sets for the invoice. An e-invoice from your billing system, an e-invoice via PEPPOL (in Dutch), a pdf or a paper invoice? Or make it easy for your customer, so that they can easily pay via a digital payment request or iDEAL.
- Ask your customer what should be on the invoice and where. Think of a purchase number, also called PO number (purchase order number).
Send your invoice as soon as possible after delivery of your product or service. Make sure your invoice is correct. Your client or customer may send back an invoice with mistakes or delay payment.
Naturally, you want satisfied customers. So right after the delivery of your product or service, ask if everything is to their satisfaction. A satisfied customer will pay sooner. Keep track of which customers pay on time and which customers make their payment late.
Legally, you must send an invoice by the 15th of the month following the month in which you delivered the product or service. Example: you delivered your product on 20 October. You then send your invoice no later than 15 November.
Send payment reminders
If your client does not pay the invoice on time, you can take the following steps:
- Send a first reminder 2 days after the payment deadline.
- After that, contact the customer by telephone to clarify any uncertainties concerning the invoice.
- Send a reminder (second reminder) 7 days after the first reminder by registered mail with confirmation of receipt.
- Send a pre-collect notice by registered post with confirmation of receipt 7 days after the second reminder. In a pre-collection, you state that you have not received any payment to date. And that you will call in a debt collection agency within 14 days (legal deadline).
- Call again after 14 days and state the possible extra costs per collection.
- Call in a debt collection agency after the statutory period of 14 days. A debt collection agency sends your debtor one or more demands. Your customer must pay these within 14 days. A collection agency is not allowed to use coercive measures.
The relationship with your customer is important. The steps described above and the associated deadlines are not set out in law. You can therefore deviate from them. This does not apply to the statutory periods mentioned for pre-collection and the 14-day payment period for the debt collection agency.
Agree on a payment schedule
One option is to propose a payment schedule to your client or customer. Before you do this, first check in with them to see whether postponing payment would help. If your client or customer is unable to pay the invoice within a short period of time, agree on a payment schedule. Make sure to put this payment arrangement in writing. The arrangement will expire after your customer has paid at the agreed times.
If your client fails to pay or pays late, you may charge statutory interest. Statutory interest is calculated over the period in which your client fails to pay after the payment deadline has past. You are also entitled to a standard compensation of at least €40, and to compensation for legal costs or collection costs.
You have done everything to make sure your client or customer pays, but it has not worked. It is time to take legal action. Call in a bailiff. A bailiff will collect the debt from your client for you or will agree on a payment schedule with your client. If your client does not respond, you can start legal proceedings. The bailiff will then summon your client. The summons states where and when your client must report to the court. The judge will make a judgement (verdict) and the court bailiff will give this judgement to your client. If your client does not comply with the court ruling, the court bailiff can seize your client's income or possessions.
Petition for WHOA
The WHOA ('Wet Homologatie Onderhands Akkoord') helps entrepreneurs who are at risk of bankruptcy due to high debts, but who still have viable business activities. The purpose of the WHOA is to reorganise debts so that companies can continue to do business, or cease their activities without bankruptcy. With WHOA, a debt settlement agreement can be reached without the consent of all creditors.
As a creditor, you can petition for WHOA on behalf of your client. To do so, you will need to engage a lawyer. Your lawyer can petition the court for the appointment of a restructuring expert to prepare the WHOA request. You will have to pay the court fees and lawyer's fees yourself. The aim of a WHOA procedure is for creditors to receive more of their money back than in case of bankruptcy.
File for 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. For this, 2 creditors are needed. If your client has already been declared bankrupt, you can submit a specialised claim to the trustee. This is called 'filing for verification' ('indienen ter verificatie').
Calculate the collection period
The collection period is the average number of days it takes your debtors to pay their invoice. This is not the same as the payment term. The payment term is the term within which your customer must pay according to the agreement. The actual term within which you have the money in your account can differ from this. The average collection period is 30 to 60 days. This is how you calculate the collection period:
Total receivables (debtor amount) divided by your turnover x 365
If you have a high accounts receivable balance and a long average collection period, it means that your debtors often pay late. This affects your cash flow; you have less money to pay your expenses. In addition to the options for getting your clients or customers to pay more quickly, you can opt for debtor financing, also known as factoring.
Factoring (in Dutch) is a form of credit for which a factoring company takes over your outstanding invoices. Some factoring companies, also known as factors, offer this for amounts as little as €1,000. The factor investigates your creditworthiness in advance. You immediately receive the outstanding amount and pay the factor a fee. The fee is a percentage of your invoice or of your turnover. The factoring company collects the invoice amount from your clients. Factoring immediately improves your liquidity. It gives you money that is immediately available for spending.
One form of factoring is reverse factoring (in Dutch). The factor then investigates the creditworthiness of your client. Your client gives a payment guarantee for invoices they approve. As soon as the factor knows for sure that the client will pay, they advance the amount to you within 5 or 10 days. Usually, the factor is the financier of your client. Reverse factoring can be interesting for large clients, such as supermarkets and energy companies, who often greatly exceed the average payment period.
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 or has a suspension of payment. Credit insurance is also called debtor insurance. Credit insurance is only applicable if you have business clients. You can choose different forms of insurance, such as insurance per transaction or per debtor. You can also insure your total turnover, which is the most comprehensive insurance. If you mainly do business with clients in a specific country, you can opt for credit insurance per country.
Extend the limitation period for invoices
Extend the limitation period for invoices Every sent invoice has a limitation period. After the limitation period, your client is no longer obliged to pay. For consumers, the limitation period for the purchase of products is 2 years. If a consumer buys a service or a trip, the limitation period is 5 years. With business clients, the limitation period is 5 years from the end of the payment deadline. Do you send your clients a payment reminder before the end of the limitation period? From that moment, the limitation period will start over again. This is called interrupting.
Keep accounts receivable records
The retention period for your (debtor) administration is 7 years. This applies to your paper and digital records. You must keep all outstanding invoices from your clients in your accounts receivable administration. You also keep your purchase and sales invoices. The Tax and Customs Administration has listed the other information (in Dutch) you must keep records of.
Bad debts are customers who will probably never pay their invoice. You can create a provision for doubtful debtors in your administration. You transfer the invoice amount excluding VAT from the category 'ordinary debtors' to the 'doubtful debtors' category.
Reclaim non-recoverable VAT
Unless you are exempt from VAT, you state VAT on the invoice to your debtor. You declare this VAT in your turnover tax return and pay it to the Tax and Customs Administration. If it is certain that your debtor will not pay the invoice, or only partially, you can claim a refund of this VAT (in Dutch). A receivable is considered non-recoverable one year after the final payment term date has passed.