Causes of bad debt
There are many causes of bad debt, including the following main reasons:
(i) The debtor's financial status: The debtor has difficulties in paying the debt due to unsold goods, slow sale, interruption of production and business activities or capital misappropriation by partners.
(ii) The debtor intentionally appropriates capital: Due to the lack of capital for production and business, the debtor finds many reasons to delay the payment, taking advantage of the creditor's capital to manage his production and business activities.
(iii) Debt collection lacks close supervision and management: The person in charge of debt is inexperienced, does not closely monitor the status of debt, the debt collection method lacks regular and strict supervision.
(iv) Debt dossiers are still in dispute: There are cases due to missing documents, loss of some transaction documents or the quantity of goods has been controversial, complaints about product quality, unsatisfied commission discount, not yet agreed on the completed amount. Therefore, the debtor does not agree to pay the debt.
Consequences of debt
Capital for businesses is a key factor for stable and prosperous business operations. The purpose of business activities is only really achieved when the enterprise recovers the invested capital and generated profits. Debt is a matter of concern for businesses and its influence is huge, specifically:
(i) Causing difficulties to regular payment activities of the enterprise such as paying salary, rent, electricity, water, and telecommunications costs of the enterprise.
(ii) Disrupting production, investment and business activities of enterprises due to lack of capital;
(ii) Long-term debts will turn into bad debts, even the risk of losing capital or being unable to collect debts because the debtor is no longer able to pay.
ADK & Co Vietnam Lawyers