Stable asset management, a decisive factor in determining the future of a company

Recently, the size of accounts receivable has been rapidly increasing, especially in the domestic construction industry. According to data from Nice Credit Rating, trade receivables of major domestic construction companies increased from KRW 18.4 trillion at the end of 2021 to KRW 33.8 trillion in the first half of this year. This is an 83.5% increase in just three years. The increase in receivables is not limited to the construction industry. Amid complex external variables such as economic recession, supply chain instability, and changes in the global situation, the risk of payment recovery is increasing across industries such as manufacturing, distribution, and service industries.

From a corporate perspective, debt collection is an issue that goes beyond securing money through collection and is directly related to liquidity management, financial soundness, and even business continuity. If debt collection fails, the financial structure will be shaken and partners, subcontractors, and even financial institutions will be hit like dominoes. Therefore, debt collection should be understood as a management strategy for the survival of a company.

The problem is that if recovery is delayed or fails, even though it is recorded as an asset in the financial statements, no actual capital inflow occurs, which has a negative impact on the overall cash flow of the company. When cash inflow is blocked, companies rely on short-term borrowing to make up for insufficient liquidity, which also increases interest costs. Increased costs hinder profitability and ultimately lead to worsening financial indicators, leading to a downgrade in credit rating. As a result, it can fall into a vicious cycle in which additional external financing becomes difficult.

To resolve this, you must initiate a debt collection process, but if you do not go through the legal process, you will not only be subject to criminal punishment, but it can also cause serious damage to the company's credibility and image. Therefore, it is of utmost importance to approach it in a due process and strategic manner within the legally permitted scope. It starts with the process of notifying the obligation to fulfill the debt through proof of contents, and then secures rights through a payment order application or civil lawsuit. If you win the lawsuit, you can attempt actual recovery through compulsory execution if necessary. If the debtor has already entered rehabilitation or bankruptcy proceedings, he or she must participate in dividends and exercise his or her rights.

At the same time, it is necessary to strive for proactive risk prevention to reduce the risk of bond origination from the beginning. First, at the contract stage, it is a good idea to detail the payment deadline, late interest, and measures to be taken in the event of a dispute. If the transaction amount is large or the project is carried out over a long period of time, preparations must be made to organize advance payments, intermediate payments, and balances, distribute risks through prepayment, and minimize losses in the event of receivables.

A company's survival ultimately comes from cash flow. And the first step to maintaining this trend is to thoroughly manage receivables without neglecting them. Receivables left unattended at this moment may return as a crisis tomorrow. In today's economic environment of prolonged uncertainty, stable asset management will soon become a decisive factor in determining the future of a company.
 

Small Business Team

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