Two hundred countries are now reporting positive cases of COVID-19 as the virus spreads globally, and that impacts business activities, one of which is maintaining company cash flow. Given the importance of cash flow at this time, on April 27, 2020, the Indonesian Ministry of Finance issued regulation No.44/PMK.03/2020 of 2020 on Taxation Incentives for Taxpayers Affected by the Coronavirus Pandemic (“MOF Regulation 44/2020”). MOF Regulation 44/2020 allows Taxpayers who hold KITE and whose businesses fall within certain business sector classifications to be entitled to a deduction in the amount of thirty percent (30%) with respect to Article 25 PPh installments by submitting a notification of the amount of the Article 25 PPh installment deduction. This incentive is granted for a period from the date of notification until September 30, 2020.
However, Companies that struggle with low cash reserves or unstable cash flows find it challenging to follow MOF Regulation 44/2020. It is extremely important for companies to maintain their cash flow by developing a billing management plan as part of their overall business risk and continuity plan. In doing so, it is essential to mitigate the implications not only for their business but also for their clients. Companies tend to be negligent about payments when interest rates are relatively low. However, as managing cash flow becomes more important during the crisis, a hard look at how companies’s receivables are managed is worth taking. That is why companies need to improve the collection processes by focusing on bill collection strategies to avoid delays in receiving payments. This article will introduce ways to deal with bill collection issues during this uncertain situation.
Bill Collection Strategies
By implementing the right collection strategies, you can increase the likelihood that you will be paid on time. Here are five ways to easily collect the bill:
1. Make sure that your clients can comply with the agreement
Make it easy for your clients to understand what bills they have to pay and how to make the payment. Include the following details in the agreement:
- Content Information;
- Code and Serial Number of Tax Invoice
- Companies or Taxable entrepreneurs: the name, address and taxpayer registration number of the Taxable Entrepreneur delivering the taxable goods and/or services.
- Clients or Purchasers of the Taxable Goods and/or Recipients of the Taxable Services: the name, address and taxpayer registration number of the purchaser of taxable goods and/or recipients of the taxable services.
- Purchase Order Number
- Value Added Tax (“VAT”) Calculation
For invoices in foreign currencies, VAT will be paid in invoice currency and transferred to your USD account (if any).
- Additional Information
- Invoice number and date;
- Amount of payment;
- Payment terms such as late fees;
- Payment methods; and
- Your contact information.
2. Retain supporting documents
To avoid any potential delays, Companies should retain supporting documents as follows:
- Invoice related to services and material; and
- Invoice related to resources.
Both invoices must be sent along with a copy of the latest Purchase Order, a copy of Good Receive, and related tax documents (faktur pajak/tax invoice)
3. Friendly reminder
Noting that the COVID-19 crisis is also affecting the global economy, it is necessary to remind your clients in a favorable way. Understand your clients’ situation and consider agreeing to payment arrangements if your clients happen to propose one. If your clients are in a difficult financial situation or lacking liquidity, you might need to consider setting up a payment arrangement. Your clients may intend to pay your invoice but cannot immediately do it in full. This approach shows your understanding of the circumstances and the willingness to help them, which may improve your business relationship.
4. Appoint an external counsel to collect the payment
Here is a suggestion that you need to consider in your billing management process, which is important especially during the COVID-19 outbreak: hire an external counsel to help you. An external counsel experienced in bill collection can provide you with a proper demand letter and settlement when your clients are unable to pay the full amount owed. Conversely, if you have successfully claimed your clients but still haven’t been paid, an external counsel can help you recover the money you are owed. An external counsel can help determine which legal strategy is the most effective for collecting the bill.
5.Commercial incentive to encourage prompt payments
Your goal is to issue your invoices quickly and make it as easy as possible for your clients to pay you. Ways to maximize the collection of receivables include:
Providing incentives and late payment fees
Give your clients the motivation to pay invoices by offering them a little incentive. Even a small discount, one to five percent of their bill for payment before the bill is due, should be an incentive for them to pay the invoice either early or on-time. Additionally, you also need to let your clients know the consequences if they are late paying their invoices. Late fees are not supposed to be used for your own financial gain. It is intended to encourage clients to pay on time. Although late fees are required, you don’t want to use outrageous figures.
Offering to continue working with you if they pay on time
You can terminate the contract in case your clients consistently pay late. The incentive for them here is that paying on time keeps you working. If your clients think that you keep working without payment, it shows that they have the leverage.
However, the above strategies might not work as expected. Disputes may arise as your clients fail to pay your bills. In Indonesia, the methods used to resolve commercial disputes are alternative dispute resolution (“ADR”), arbitration, and litigation.
ADR methods such as mediation, consultation, negotiation, conciliation, and expert opinion are still rarely used to resolve disputes in Indonesia. However, when dealing with large commercial transactions, the parties choose and apply various forms of ADR (particularly negotiation and mediation). There is a trend to include these mechanisms as a first step in the dispute resolution clause. If the settlement through ADR is not successful, the parties usually settle the dispute through litigation or arbitration.
The parties may agree to proceed to arbitration either before or during a dispute. An arbitration agreement must be prepared in writing and contain an arbitration clause. A separate agreement may also need to be entered into after a dispute arises. The arbitration clause should state that the parties intend to settle any dispute through arbitration under the arbitration rules and at the seat of arbitration. The disputing parties and the chair of the district court may appoint a sole arbitrator or an arbitral tribunal. In Indonesia, the Indonesian National Board of Arbitration (Badan Arbitrase Nasional Indonesia or “BANI”) is the national arbitration board and has its own rules. BANI, established by the Indonesian Chamber of Commerce and Industry in 1977, deals with disputes in the areas of trade, industry and commerce.
A civil proceeding brought before the Court can be classified either as a claim, which relates to the submission of a dispute to the Court for adjudication, or a petition, which is a request to the Court to make a declaration. The common grounds for a civil claim are a breach of contract (failure in the performance of a contractual obligation / wanprestasi) or an unlawful act (failure in the performance of a statutory obligation / perbuatan melawan hukum).
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By combining commercial sensibilities and legal expertise, ADCO as a Law Firm Jakarta assists the clients to structure, organize and implement their business ventures and investments, including structuring, financing and securing investments as well as establishing new foreign companies in Indonesia. Should you have more queries regarding this matter, please do not hesitate to contact us.
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This publication has been prepared by Nursanti Savitri Kireina for general informational purposes only to provide clients with information on recent legal developments and is not intended as legal advice or opinion.