Debt Recovery Indonesia: A Guide for Companies Dealing With Delinquent Accounts
Navigating the intricacies of delinquent accounts and debt collection in Indonesia can be daunting.
In this article, we study how businesses can manage delinquent accounts and bad debt. Let’s get started by taking a look at:
An account is considered delinquent when the customer has not met the scheduled payments or obligations within a stipulated time frame. Both receivables (amounts owed to a company by its customers) and loans (borrowed funds that need to be repaid) can become delinquent.
For instance, if a business sells goods on credit terms to a client and the client fails to pay within the agreed terms, that receivable becomes delinquent. Similarly, if an individual takes out a personal loan and misses the monthly instalment, that loan is classified as delinquent.
As days progress without settlement, the severity of delinquency increases. Delinquency is usually tracked in stages, often categorised by the number of days past due: 30, 60, 90, and so on. Each stage represents a higher level of risk for the lender or creditor.
Delinquent accounts and bad debt can have significant repercussions on a company's performance such as:
When accounts receivables (ARs) become delinquent, companies must recognise a provision for bad debts or an allowance for doubtful accounts. This is done to reflect the likelihood of non-payment, which is reflected as a reduction of revenue on the income statement.
In addition, as bad debts are recognised as an expense, they increase operating costs, which reduces profitability and hinders cash flow. Consequently, this will harm the organisation’s stability and limit its ability to meet operational needs and invest in growth opportunities.
Delinquent accounts not yet written off still appear on the balance sheet as accounts receivable. However, the balance may need to be adjusted by the allowance for doubtful accounts to reflect the expected collectable amount accurately.
When bad debts are written off, they also reduce the company's total assets, which diminishes its financial strength and overall asset base. Delinquent accounts left on the balance sheet can create a misleading picture of the company's financial health, potentially overestimating its liquidity and assets.
In the face of mounting non-performing debt and the complex challenges associated with delinquent accounts, some companies may seek alternative solutions to mitigate risk and streamline their financial operations.
One such strategy is the liquidation of non-performing debt. This approach involves transferring the ownership of delinquent accounts from one party to another, often to specialised debt-buying firms like Collectius.
When a company's financial health is compromised due to delinquent accounts and rising bad debts, lenders may perceive it as a higher credit risk.
As a result, the company may face higher interest rates and less favourable borrowing terms when seeking financing for operations, expansion, or capital investment. These elevated borrowing costs can erode profitability and reduce the financial resources available for growth initiatives.
It is important to be aware that the police cannot help you when it comes to collecting debt. This is because debts are seen as a civil not criminal matter. Given these constraints, businesses and individuals often wonder about the best avenues for legitimate debt recovery.
If internal efforts are not fruitful and the customer defaults on payment, then a company may choose to engage the services of a collection agency. These are businesses that specialise in recovering debt owed to their client.
While businesses usually have their own internal procedures for collecting debt, some situations may require professional help. This is where debt collection agencies in Indonesia come into the picture.
In Indonesia, debt collection activities are subject to various laws and regulationsto ensure ethical practices. Although there isn't a centralised 'Debt Collection Bill' that mandates licensure specifically for these agencies, they are expected to operate under the bounds of the law.
The regulations also stipulate that debt collection agencies and their representatives must act professionally at all times. Unethical behaviours such as threatening or harassing the debtor are prohibited and could lead to legal consequences.
Given the sensitive nature of debt collections, it's crucial for companies to collaborate with reputable agencies when attempting to recover their funds.
Besides collection agencies, there are other options available to companies looking to recoup losses incurred by a non-performing loan, one such way is through the liquidation of their debt portfolios.
Some businesses have begun exploring the concept of liquidating their debt portfolio. It works by transferring the ownership of outstanding debts from one party (typically a business or financial institution) to another entity, usually a specialised debt-buying firm.
This allows the original creditor to receive a percentage of the total debt value upfront. That way, the business can receive cash for assets they no longer consider having any value in the balance sheet (written off).
Immediate Liquidity
Selling a debt portfolio offers businesses an instant cash inflow, which can be reallocated to other pressing financial needs or investments. This liquidity can be especially critical during economic downturns or when facing unexpected financial challenges, ensuring the company remains agile and adaptable in a dynamic business environment.
Risk Mitigation
Transferring delinquent debt to a specialised debt-buying entity mitigates the inherent risk associated with non-recovery. Some debts may become increasingly difficult to collect over time which poses a financial burden and can lead to write-offs which damage the firm’s financial standing.
Operational Efficiency
Managing delinquent accounts internally can strain a company's resources, tying up personnel and diverting focus away from core business functions. By choosing to liquidate non-performing debt, businesses can gain valuable personnel hours and significantly reduce their operating expenses.
Clearing Balance Sheets
Removing non-performing debt from the balance sheet lets businesses present a clearer and healthier financial picture to investors and stakeholders. This improved financial transparency can enhance the company's creditworthiness, making it more attractive to potential investors and lenders.
More importantly, it also equips managers and leaders with the knowledge they need to make more educated decisions. All of which are essential for a business to stay ahead of the competition in today’s competitive world.
When it comes to managing bad debt, Collectius employs a holistic approach that not only supports businesses in their financial endeavours but also upholds the dignity of all customers through what we call “The Collectius Way of Collection”.
We offer a transparent process, ensuring our clients are well-informed at every stage, thus paving the way for an informed decision-making process.
In an industry often stigmatised for aggressive tactics, Collectius prides itself on maintaining the highest ethical standards. We believe that each customer has a unique circumstance, and our approach is always rooted in respect, understanding, and empathy.
On top of that, we are 100% compliant with all governmental regulations, ensuring that our partnerships are built on a foundation of trust and legality.
In this article, we study how businesses can manage delinquent accounts and bad debt. Let’s get started by taking a look at:
What are Delinquent Accounts?
An account is considered delinquent when the customer has not met the scheduled payments or obligations within a stipulated time frame. Both receivables (amounts owed to a company by its customers) and loans (borrowed funds that need to be repaid) can become delinquent.
For instance, if a business sells goods on credit terms to a client and the client fails to pay within the agreed terms, that receivable becomes delinquent. Similarly, if an individual takes out a personal loan and misses the monthly instalment, that loan is classified as delinquent.
As days progress without settlement, the severity of delinquency increases. Delinquency is usually tracked in stages, often categorised by the number of days past due: 30, 60, 90, and so on. Each stage represents a higher level of risk for the lender or creditor.
The Impact of Delinquent Accounts from an Accounting Perspective
Delinquent accounts and bad debt can have significant repercussions on a company's performance such as:
1. Reduced revenue and income
When accounts receivables (ARs) become delinquent, companies must recognise a provision for bad debts or an allowance for doubtful accounts. This is done to reflect the likelihood of non-payment, which is reflected as a reduction of revenue on the income statement.
In addition, as bad debts are recognised as an expense, they increase operating costs, which reduces profitability and hinders cash flow. Consequently, this will harm the organisation’s stability and limit its ability to meet operational needs and invest in growth opportunities.
2. Lowers asset values
Delinquent accounts not yet written off still appear on the balance sheet as accounts receivable. However, the balance may need to be adjusted by the allowance for doubtful accounts to reflect the expected collectable amount accurately.
When bad debts are written off, they also reduce the company's total assets, which diminishes its financial strength and overall asset base. Delinquent accounts left on the balance sheet can create a misleading picture of the company's financial health, potentially overestimating its liquidity and assets.
In the face of mounting non-performing debt and the complex challenges associated with delinquent accounts, some companies may seek alternative solutions to mitigate risk and streamline their financial operations.
One such strategy is the liquidation of non-performing debt. This approach involves transferring the ownership of delinquent accounts from one party to another, often to specialised debt-buying firms like Collectius.
3. Increases Borrowing Costs
When a company's financial health is compromised due to delinquent accounts and rising bad debts, lenders may perceive it as a higher credit risk.
As a result, the company may face higher interest rates and less favourable borrowing terms when seeking financing for operations, expansion, or capital investment. These elevated borrowing costs can erode profitability and reduce the financial resources available for growth initiatives.
Understanding Debt Collection in Indonesia
It is important to be aware that the police cannot help you when it comes to collecting debt. This is because debts are seen as a civil not criminal matter. Given these constraints, businesses and individuals often wonder about the best avenues for legitimate debt recovery.
If internal efforts are not fruitful and the customer defaults on payment, then a company may choose to engage the services of a collection agency. These are businesses that specialise in recovering debt owed to their client.
Debt Collection Agency Indonesia
While businesses usually have their own internal procedures for collecting debt, some situations may require professional help. This is where debt collection agencies in Indonesia come into the picture.
In Indonesia, debt collection activities are subject to various laws and regulationsto ensure ethical practices. Although there isn't a centralised 'Debt Collection Bill' that mandates licensure specifically for these agencies, they are expected to operate under the bounds of the law.
The regulations also stipulate that debt collection agencies and their representatives must act professionally at all times. Unethical behaviours such as threatening or harassing the debtor are prohibited and could lead to legal consequences.
Given the sensitive nature of debt collections, it's crucial for companies to collaborate with reputable agencies when attempting to recover their funds.
An Alternative to Debt Collection Agencies in Indonesia
Besides collection agencies, there are other options available to companies looking to recoup losses incurred by a non-performing loan, one such way is through the liquidation of their debt portfolios.
Some businesses have begun exploring the concept of liquidating their debt portfolio. It works by transferring the ownership of outstanding debts from one party (typically a business or financial institution) to another entity, usually a specialised debt-buying firm.
This allows the original creditor to receive a percentage of the total debt value upfront. That way, the business can receive cash for assets they no longer consider having any value in the balance sheet (written off).
Advantages and Reasons Companies Might Choose This Route:
Immediate Liquidity
Selling a debt portfolio offers businesses an instant cash inflow, which can be reallocated to other pressing financial needs or investments. This liquidity can be especially critical during economic downturns or when facing unexpected financial challenges, ensuring the company remains agile and adaptable in a dynamic business environment.
Risk Mitigation
Transferring delinquent debt to a specialised debt-buying entity mitigates the inherent risk associated with non-recovery. Some debts may become increasingly difficult to collect over time which poses a financial burden and can lead to write-offs which damage the firm’s financial standing.
Operational Efficiency
Managing delinquent accounts internally can strain a company's resources, tying up personnel and diverting focus away from core business functions. By choosing to liquidate non-performing debt, businesses can gain valuable personnel hours and significantly reduce their operating expenses.
Clearing Balance Sheets
Removing non-performing debt from the balance sheet lets businesses present a clearer and healthier financial picture to investors and stakeholders. This improved financial transparency can enhance the company's creditworthiness, making it more attractive to potential investors and lenders.
More importantly, it also equips managers and leaders with the knowledge they need to make more educated decisions. All of which are essential for a business to stay ahead of the competition in today’s competitive world.
Why Collectius is Your Ideal Partner for Managing Bad Debt
When it comes to managing bad debt, Collectius employs a holistic approach that not only supports businesses in their financial endeavours but also upholds the dignity of all customers through what we call “The Collectius Way of Collection”.
We offer a transparent process, ensuring our clients are well-informed at every stage, thus paving the way for an informed decision-making process.
In an industry often stigmatised for aggressive tactics, Collectius prides itself on maintaining the highest ethical standards. We believe that each customer has a unique circumstance, and our approach is always rooted in respect, understanding, and empathy.
On top of that, we are 100% compliant with all governmental regulations, ensuring that our partnerships are built on a foundation of trust and legality.