Collecting overdue invoices: the debt collection process
Overdue invoices occur regularly. In B2C, the problem is widely known. On average, Belgian customers do not pay their invoices in time. Hospitals, energy suppliers and tax authorities have to deal with collecting overdue invoices. The digital economy, too, suffers from late payments: Zalando and bol.com are two e-commerce giants that offer sales on credit. Customers place an order without any advance payment and forget to pay for their order once it has arrived.
The B2B market also suffer from outstanding payments, affecting their DSO. Sales on credit are a popular way of closing deals between businesses – half of the Belgian businesses closes sales on credit – but this popular payment method entails a risk. An average of 31.3% of these sales are not paid in time. This means that approximately one third of all credit sales result in overdue invoices.
If a customer hasn’t paid an invoice after the payment date, this invoice becomes a default. The customer is then called the debtor and the entity to which he or she owes money is called the creditor.
When a customer doesn’t pay in time, companies start collecting these overdue invoices. Companies, called creditors from now on, first send a payment reminder. Creditors determine how many payment reminders they’ll send before taking further steps. Only if reminders don’t provoke any action, creditors move onto the next phase. From this point on, the collection is often passed onto external debt collectors.
Notice of default
Amicable collection is the first way to collect overdue invoices when payment reminders don’t elicit payment. To start this phase, a notice of default must be sent to the debtor. This document must meet 3 requirements:
- All information of the default should be unambiguously listed in this notice.
- Charged damages and interests on late payment must be mentioned explicitly.
- It should be noted that after a period of fifteen days without a response from the receiver, further measure can be taken.
After the debtor has received this document, the creditor must wait at least fifteen days. If there’s no reimbursement by then, the debt collector is allowed to proceed to other collection methods.
External parties usually monitor the amicable collection. Entities such as lawyers, court bailiffs, collection agencies and authorized brokers are mostly responsible for this phase of the debt collection process. They represent creditors. Since the collection is outsourced, creditors often have a hard time keeping up with the status of the collection. Since debt collectors mostly use their own platforms, creditors are unable to monitor the progress.
During the amicable collection procedure, debt collectors can contact the debtor in several ways:
- in writing (by letter or e-mail),
- by phone (phone call or text) or
- with a home visit.
Debt collectors directly contact debtors during phone calls and home visits. To prevent abuse, it is prohibited by law to call or visit debtors between 10pm and 8am.
Home visits are often a debtor’s last resort to secure payment through amicable collection. When the debt collector goes to the debtor’s home, he or she must bring a document that contains the following information:
- the visiting debt collector’s name
- a framed and bold statement saying that the debtor isn’t obliged to consent to a home visit and that he or she is allowed to stop it at any time
The debt collector must also mention the debtor’s right to stop the home visit at any time in the beginning of his or her visit. In this way, it is ensured the debtor knows his or her rights while the debt collector is collecting overdue invoices.
In short, during this stage of the debt collection process debt collectors can use multiple methods to collect overdue invoices. As a creditor, it’s important to know how debt collectors are approaching debtors so that it can be ensured the debt collectors are proceeding in accordance with the creditor’s corporate social responsibility (CSR) charter. This is the reason why creditors benefit from transparency in the debt collection process.
Legal collection is the last phase of the debt collection process. This phase is used if the outstanding payment couldn’t be collected. As it’s not obligated to collect amicably, debt collectors can skip this phase and start collecting legally immediately. However, instantly collecting overdue invoices legally isn’t recommended with regard to customer satisfaction.
In this phase, the help of court is used to enforce payment.
The type of court processing the case depends on the nature of the overdue invoice:
- If the creditor is liable to pay VAT, the commercial court is responsible for processing it. In B2B and B2C cases, this option is applicable.
- If the creditor is a natural person and the default amounts to less than 2500 EUR, the justice of the peace is in charge.
- if the creditor is a natural person and the defaults amounts to over 2500 EUR, the tribunal of first instance deals with the case.
The court allots the creditor with an enforcement order, which is a legally binding order. It can take on 3 forms:
- a sentence,
- a deed or
- a writ.
An enforcement order allows a court bailiff to seize goods of the debtor to reimburse the outstanding payment.
As a company, you’re not in control anymore of the tactics used in this stage. The costs can also amount to large numbers.
Collecting overdue invoices without hassle
Virteo allows you to fully and transparently follow up files you’ve distributed to debt collectors. We ensure your company can collect overdue invoices with respect for your clients and achieve good financial results.
Dozens of debt collectors, such as court baillifs and lawyers, are working on our platform so that you can collect all of your Belgian and international overdue invoices. Virteo lets you keep track of the progress on these files and ensures that your debtors are approached correctly.
We unite companies and debt collectors in Virteo. Since they have access to the same platform, companies are able to check how quickly overdue invoices are collected and what costs are charged in the process. In this way, companies determine which debt collector suits their needs the best. As a result, companies can collect overdue invoices more efficiently and more ethically.