Year-End Debt Pressure is a common challenge that troubles many businesses, especially as the financial year draws to a close – a period when cash flow becomes even more sensitive. Overdue receivables can easily cause liquidity bottlenecks, leaving businesses under strain to pay salaries and year-end bonuses while also struggling to maintain working capital for the next year’s operations. As such, collecting debts before the year-end is essential to ensure financial stability. However, not all businesses know how to collect debts effectively while still complying with the law. Without an appropriate and lawful approach, debt collection may lead to disputes, damage to reputation, or even violations of legal regulations. This article offers an in-depth and practical perspective on Year-End Debt Pressure: What Should Businesses Do to Collect Effectively and Lawfully? helping businesses maintain sustainable cooperation with their clients.
What is debt? What does effective debt collection mean?
Debt arises when an individual or business engages in a transaction – such as the purchase, sale, or exchange of goods and services, but fails to make full payment at the agreed time, postponing it to a later period. Debts can occur between two businesses, between individuals and businesses, or even between individuals. Effective debt management is crucial to a company’s financial health. Prolonged or uncollectible debts can lead to cash shortages, reduced liquidity, and damage to commercial credibility – all of which threaten long-term growth.
Currently, there are many different forms of debt collection with their own advantages and disadvantages, in which there are generally two ways: (i) legal debt collection and (ii) debt collection by negotiation. In order to solve Year-End Debt Pressure, businesses must choose the right and lawful collection method to ensure full and timely payment of receivables, while also optimising cost and time efficiency. More importantly, businesses should preserve goodwill and maintain positive commercial relationships to protect long-term partnerships.
How to effectively address Year-End Debt Pressure
According to the Civil Code 2015[1], the right to full and timely payment is a lawful civil right protected by law to ensure fairness and transparency in contractual and commercial relationships.
However, debt collection must be conducted based on legal grounds and commercial goodwill, avoiding any unlawful behaviour such as threats, defamation, or public disclosure of the debtor’s personal information. Therefore, to solve Year-End Debt Pressure through effective debt collection while still complying with the law, businesses can refer to the following 5-step process:
Step 1 – Review and categorise debts
Before proceeding with the collection, businesses need to review all records, documents, and contracts to identify: (i) Debts that are due, overdue, or doubtful; (ii) The amount owed, the date incurred, and any late payment interest (if applicable); (iii) The risk level and collection ability of each debt. This classification helps businesses prioritise handling high-value or highly collectable amounts, avoiding spreading resources. This classification helps prioritise high-value or easily collectable debts, ensuring efficient allocation of resources. A detailed tracking sheet should also be created for each client, including notes on communication status, responses, and intended follow-up actions.
Step 2 – Contact and send payment reminders
After identifying the list of outstanding debts, the business should take the initiative to contact and send reminders to the debtor. Such reminders should be made tactfully, respectfully, yet firmly, to maintain goodwill while still protecting the business’s legitimate interests. Businesses may send Reminder Letters or Demand Letters containing: (i) Relevant contract or transaction information; (ii) The outstanding amount and payment deadline; and (iii) The legal consequences of non-payment. In addition, businesses may follow up via phone or email. All communications should be documented as evidence for potential legal proceedings. It is also advisable to collect information about the debtor’s contact details, assets, and financial capacity to assess their payment ability.
Step 3 – Negotiation
Negotiation is often preferred by businesses due to its advantages of being simple, flexible, cost-effective, and free from complex legal procedures. It also helps protect business confidentiality and maintain long-term commercial relationships. Therefore, businesses are encouraged to prioritise negotiation before resorting to legal measures.
If, during negotiation, the debtor shows goodwill and cooperation, the business may consider proposing flexible solutions, such as granting an extended payment period, allowing instalment payments, reducing part of the late payment interest, or offering a discount for early payment.
Where both parties reach an agreement, the business should prepare a supplementary agreement (if new terms are introduced) and request the debtor’s signature. The document should clearly state the payable amount, payment deadline, and payment method, and be duly signed and sealed to ensure its legal validity. Such a document may also serve as evidence in the event of a future dispute.
Step 4 – Send a final notification
If negotiation fails or the debtor refuses to cooperate or deliberately avoids contact, the business should issue a Final Notice of Payment. This document should specify: (i) the total debt, any applicable late payment interest, and the payment deadline; (ii) the legal consequences for failing to fulfil the payment obligation; (iii) the final deadline for compliance (typically within 5–7 days).
Issuing the final notice not only demonstrates the business’s goodwill in seeking resolution, but also serves as evidence that the business has fulfilled its obligations to remind and negotiate—an important factor in protecting its legal rights in subsequent court proceedings.
Step 5 – Filing a lawsuit and enforcing the court’s judgment
If all previous measures fail, the business may initiate a lawsuit at the competent court, thereby applying legal debt collection. To do so, the business should take the following steps:
- Final review and verification: Before filing a lawsuit, the business should conduct a thorough review to ensure that the debtor has indeed breached its payment obligations under the contract. This involves cross-checking all supporting documents – contracts, confirmations of debt, reminder letters, and correspondence between both parties.
- Preparation of lawsuit dossiers: Lawsuit dossiers include: A Statement of Claim; Supporting documents such as contracts, appendices, invoices, correspondence, and other evidence proving the debtor’s payment obligations; Documents evidencing the business’s legal status, such as the Enterprise Registration Certificate or Investment Certificate.
- Submitting the claim and participating in proceedings:
After completing the dossier, the business should submit the Statement of Claim to the competent court to demand payment from the debtor. Subsequently, the business should exercise its rights and obligations in litigation as prescribed by law, including providing evidence, attending mediation sessions and court hearings, to protect its legitimate interests and request the court to compel the debtor to fulfil its payment obligation.
Once the court’s judgment or decision takes effect, if the debtor still fails to comply, the business has the right to file an application for judgment enforcement in accordance with the law.
In conclusion, in the context of Year-End Debt Pressure and the need to close outstanding accounts, businesses should proactively implement a structured, flexible, and lawful debt collection process. Combining good-faith negotiation with appropriate legal measures not only ensures financial protection but also preserves the company’s credibility, reputation, and long-term business relationships. Ultimately, effective debt management is not just a short-term year-end solution — it is a sustainable financial strategy that strengthens the foundation for stable operations and continued growth in the new year.
The above is an overview of Year-End Debt Pressure: What Should Businesses Do to Collect Effectively and Lawfully? If you have difficulties in finding a Law Firm to advise and support in the relevant legal field, please contact us. Phuoc & Partners is a professional consulting firm established in Vietnam and currently has nearly 100 members working in three offices in Ho Chi Minh City, Hanoi and Danang. Phuoc & Partners is also rated as one of the leading consulting firms in Vietnam with highly specialised teams in top legal fields such as Labour and Employment, Taxation, Merger and acquisition, Litigation. We are confident in providing customers with optimal and effective service.
[1] Article 440.1, Article 466.1 of the Civil Code 2015
