A received payment from a customer could eventually be requested to be paid back by an insolvency administrator if a customer has applied for insolvent proceedings. This can threaten a company‘s own liquidity in the future and therefore it is imperative that debtor management processes are optimised to reduce these insolvency contestation risks.
The Insolvency Process
When your customers‘ are unable to meet financial obligations due to excess of liabilities over assets, according to Insolvency Law they are obliged to start an insolvency process. This requires assigning an insolvency administrator whose main objective is to safisfy the creditors and suppliers of the insolvent company. If the insolvency process concludes that the assets available are not sufficient to satisfy all relevant parties, each creditor should receive a percentage of the remaining assets to compensate for unpaid debts.
To ensure the allocation of assets is fair, the insolvency administrator must investigate whether the debtor company had already been experiencing payment difficulties before the insolvency application. In addition to this, it needs to show whether any creditors and suppliers were aware of the debtor company having payment difficulties at the time of delivery. If the insolvency administrator finds actions that proves any supplying company knew about the debtor company having liquidity issues, it may conclude that they were acting with malicious intentions. If this is the case, they can demand the related suppliers to return payments received from the debtor company during the insolvency process.
Opitimising the debtor management process to show proof
In order to contest the supplier, the insolvency administrator needs to clearly prove that the supplying company had knowledge of the company‘s liquidity issues and acted dishonestly. Under German insolvency law, insolvency administrators have the right to reclaim payments from a supplying company for up to 10 years before the insolvent proceeding started.
To protect supplying companies and their managing directors and shareholders from contestation risks, it is strategic to optimise the debtor management process and perform regular customer credit checks to make sure that customers are able to pay before delivering. By carefully monitoring customers, if the company is confronted with an insolvent customer and the insolvency administrator wants to reclaim payments made over several years, the company can clearly prove that they were not aware the customer had payment issues at the time when deliveries were made.
How Ready4 Credit Management can help
Supplying companies can have hundreds or thousands of customers, dealing with high volumes of deliveries every month, which can make getting a credit overview of customers difficult. Therefore, an information system is needed that is able to record chronologically all customer’s credit checks at the time the deliveries are made and be able to retrieve this information easily when requested.
There is powerful solution that can protect companies from insolvency contestion risks. Companies using SAP can benefit from the Credit Management Suite powered by SOA People. The platform seamlessly integrates with the corporate financials and order processing in SAP and is directly interfaced with credit bureaus, payment pools, factoring institutions and trade insurers with global coverage in real-time.
It enables credit checks by entering sales orders and deliveries, historises all credit decisions in a single platform and can set relevant customer monitoring in order to check credit worthiness periodically. Ready4 Credit Management ensures that the company remains protected from insolvency contestation risks and safeguards payments done by any customer in the event of later insolvency proceedings.