Why is debt collection important at year-end and what should you do?

Many companies close their financial year on either 9/30 or 12/31. For most, this is both the busiest and most important time of the year, as all accounting entries need to be properly accounted for. But have you considered the role of debt collection in this process? In this article, we dive into why debt collection is particularly relevant at year-end and how to best handle it. The article also focuses on when a claim becomes statute-barred - and what you can do to interrupt the statute of limitations so you can pursue your claim over a longer period of time.

Year-end in a nutshell

Year-end closing is the work done to close and balance the year's respective accounts in the financial statements. The result forms the basis for the company's final result, as well as the opening entries and reconciliation of assets and liabilities for the coming year.

Where does debt collection come into play?

Debt collection should not only be a focus at year-end, but throughout the year. However, write-off decisions are made during this period when bad debt losses are considered. Managing these receivables correctly can positively impact your company's financial performance and improve cash flow. So, use this time to evaluate debtors and assess whether they should be sent for collection via a debt recovery process.

Businesses often accumulate a small or large portfolio of unpaid cases (potential debt collection cases) throughout the year, which they choose to write off. This is a shame, as the chances of getting your money back can be good.

Limitation of claims

An unpaid claim (customer invoice) generally expires after 3 years. It's important to know this rule so you can protect your company's rights in a timely manner.

The statute of limitations can be interrupted by drawing up and having a promissory note signed by the debtor. Note that debts that are documented in writing, such as promissory notes, typically expire after 10 years. In other words, the limitation period on the invoice claim is extended if your customer has acknowledged the debt.

The important role of the auditor

We always recommend that you as a business use an accountant or professional bookkeeper for your year-end closing.

Despite the fact that your business is not subject to mandatory auditing, there can often be many benefits to having a professional partner on board. An accountant or bookkeeper often has a lot of experience in closing your accounts correctly, and we often hear that the accountant's work in closing the accounts is money well spent.

Collectia - your debt collection partner

Whether you need debt collection in connection with the end of the year or any other day of the year - you are always more than welcome to contact one of our consultants for good advice and sparring on how to easily and efficiently manage your unpaid invoices.