Debt settlement and debt management are two different approaches to handle outstanding debts. The choice between the two often depends on various factors, including the financial situation of the company, the type of debts, and the company’s long-term goals.
In this article we will review a breakdown of each:
1- Definition of Debt Settlement
Debt settlement services in UAE is a debt relief strategy that involves negotiating with creditors to pay a reduced amount of the total debt owed, typically in a lump sum or through structured payments.
Suitability: Typically, this option is suitable when a company is facing financial hardship and cannot pay the full amount owed. It’s an option when a company wants to quickly resolve debts and is willing to accept a negative impact on credit scores.
2- The Process of Debt Settlement
The debt settlement agency in Dubai negotiates with creditors to settle the debt for less than what is owed. Once an agreement is reached, the company pays the agreed-upon amount, and the creditor forgives the remaining balance, as follows:
Step 1: A specialized task force is assembled to handle the account
Experienced legal and business experts are assigned cases. Their understanding of legal and financial matters allows for strategic evaluation of debtor situations and circumstances to determine the most effective recovery tactics.
Step 2: A thorough examination is launched to facilitate resolution
The debt settlement services team thoroughly examines the debtor’s finances through statements, assets and cash flow. They search for legal options like securitization, foreclosure or bankruptcy to acquire evidence and data to facilitate settlement negotiations or potential action.
Step 3: An advisory panel oversees unsettled obligations
An advisory council of specialized lawyers and debt collectors oversees unresolved accounts. They evaluate cases to design recovery plans and advise the debt recovery department through every step of the process.
Step 4: Dedicated representatives maintain involvement and updates
Relationship Managers are responsible for maintaining relationships with debtors and ensuring that they are aware of the debt recovery process. Relationship Managers will also attend court events and provide updates on the progress of the debt recovery process. This ensures that the debtor is kept informed and engaged throughout the process, which can help to facilitate a successful debt recovery outcome.
Step 5: Complimentary counsel and vetting are provided
The legal debt settlement services process includes complimentary legal consultation and due diligence to ensure that the debtor is aware of their legal rights and obligations. This also helps to ensure that the debt recovery process is fair and transparent, and that the debtor has the opportunity to seek legal advice before making any decisions.
Step 6: Tailored tactics are applied before, during, and after legal proceedings
The legal debt collection services process includes innovative solutions pre, during, and post litigation. These solutions may include negotiating a partial debt settlement, pursuing legal action, or using alternative dispute resolution methods such as mediation or arbitration. The goal of these solutions is to resolve the debt recovery dispute in a fair and efficient manner.
Step 7: Comprehensive communications and transparency are emphasized
Comprehensive reporting keeps debtors well-informed on recovery status, financial examinations and legal actions. Regular updates and in-depth reports aim to maintain transparency throughout proceedings, foster ongoing engagement and ensure a just process is followed from start to finish.
3- Definition of Debt Management
Debt management services is a structured approach to repaying debts in full, typically facilitated through a credit counseling agency.
Suitability: It’s designed for companies looking to effectively manage and pay off their debts while receiving professional guidance and support.
4- The Process of Debt Management
Step 1: Case Onboarding
In this step, the Operations department of debt management agencies receives cases of B2B debt, logs them into the system, and assigns them to the Collections Department. This process should be completed within two working days to ensure timely action.
Step 2: Careful Debt Assessment
The debt collection services begins by conducting a thorough analysis of the debtor’s situation. They gather background information on the debtor and study the case in detail. This analysis helps the team understand the debtor’s financial position, payment history, and any potential challenges or opportunities for debt recovery.
Step 3: Initial Outreach
Once the analysis is complete, the debt collection agency initiates communication with the debtor. They use various methods such as outbound calls, letters, messages, emails, and even field visits to establish contact. The purpose of this communication is to clearly communicate the debt amount, its status, and provide the debtor with details of the creditor.
Step 4: On-site Visits
For significant cases, the company may conduct field visits. These visits are carried out by their in-house field visit team or through international partners in different parts of the world. Field visits allow the debt collection services team to personally meet the debtor, assess their financial situation, and negotiate repayment terms if possible.
Step 5: Reporting & Payment Scheduling
Within 15 days after the initial approach, the debt management services team prepares an initial report on the progress made with the debtor. This report includes details of the debtor’s feedback, any progress made towards debt settlement, and a proposed settlement plan. The report is then submitted to the client for review and further instructions.
Step 6: Heightened Outreach
If the debtor fails to adhere to the settlement plan and agreed-upon dates, a second field visit is conducted. This time, a different senior debt collector handles the case. The purpose of this escalation is to exert additional pressure on the debtor and encourage them to fulfill their obligations.
Step 7: Pre-litigation Mediation
In cases where the amicable phase is not successful, and the debtor continues to default on payments, the debt management agency may resort to legal action. As a final pre-legal negotiation technique, the debtor receives a legal notice. This notice is sent with the client’s consent and serves as a formal warning that legal proceedings may be initiated if the debt is not resolved.
5- Final Considerations: Debt Settlement or Debt Management, Choosing the Right Option !
Based on the key differences outlined in this article, we would recommend evaluating your business’ financial situation and goals to determine the best approach.
Debt management services in Dubai may be preferable if you expect to receive consistent, ongoing payments over time from the business, allowing for full debt resolution. This may better ensure the creditor ultimately receives payment in full.
Debt settlement services in Dubai may allow your business to recover some funds more quickly from debtors facing hardship, rather than potentially receiving no payment at all.
However, consulting advisors could also provide useful insights into the best option for your specific circumstances.