How to Chase Down Payments and Recover Unpaid Debts

Four weeks into the Circuit Breaker (with about four more to go, taking into account the extension), businesses are starting to truly feel the impact of the pandemic on their survivability.

A key concern among businesses is that of cash flow. Little or no business activity reduces incoming cash, which in turn strains a business’ ability to meet its obligations, e.g. paying salaries, rent, suppliers etc.

To increase its cash reserves, businesses may need to look towards clawing back bad debts, i.e. pursuing repayment from people or entities that owe them money. These overdue payments are largely from customers or clients who have yet to pay for goods and services rendered (in accounting terms, accounts receivable).

Given the crunch that Covid-19 is imposing on everyone across the board, chasing overdue debts may be an uphill struggle. If you run a business, here are some options that can help you recover payments due to it.

Offer an instalment plan

An instalment plan divides the debt into several, smaller portions. Thus, instead of paying the entire debt in one shot, the debtor can space out payments over a period of time. This is useful when faced with debtors who express genuine difficulty in making full payment upfront.

For example, a debt of $25,000 can be restructured into monthly payments of $5,000 each to be paid over a period of five months. But these instalments need not be equal. If you are facing a cash crunch yourself and need more money within the immediate period, instalment sums can be larger in the initial phases, and smaller in the later phases. If the debt attracts a late payment interest or fee and you intend to enforce such additional payments, these can also be factored into the total sum that needs to be paid.

Instalments are an attractive option for both the debtor and the creditor, as the debt gets broken down into smaller and more manageable chunks. This may be a lifeline for the debtor especially when the debtor is also depending on recovering its own accounts receivable to pay the sums it owes you. For the creditor, some cash may be better than no cash.

If both the debtor and the creditor agree on an instalment plan, it is then crucial that the plan be confirmed in writing by the both of them. An email or even a WhatsApp message that is acknowledged by both sides may suffice.

But a having proper, signed agreement is the best. An agreement will contain details that clearly state what a debtor will pay, and by when. And in turn, what a creditor can expect to receive. Thus, an agreement should, at the very least, contain the following details:

  • The total amount payable under the debt, including interest and late fees (if any).
  • The number of instalments, and the amount payable per instalment.
  • The exact dates on which the various instalments must be received by the creditor (as opposed to paid or sent by the debtor, since there may be a lag between making a payment and that payment being received). Don’t just say “June” or “end May”. Fix a specific date, g. 15th January, or 28th day of every month from May 2020 to October 2020.
  • How the instalments will be paid, g. by bank transfer or by cheque.

The creditor may also wish to include other terms to protect itself. For example, should the debtor fail to pay any of the instalments fully or on time, the creditor can then immediately terminate the instalment plan – and also demand that the debtor make full payment of the outstanding amount at once. A term like this has the effect of ensuring that debtors comply with the instalment agreement.

A written agreement setting out an instalment plan is, technically, a contract. Both parties must abide by its terms. So, if you agree to an instalment plan, make sure you honour it. If you are the debtor, stick to the payment schedule. If you are the creditor, do not vary the instalment amounts, or cancel the plan abruptly by demanding full payment immediately.

There are some tax implications for receiving payments by instalments. For example, if the amount receivable is invoiced in the current tax year – but payment gets spaced out into the next tax year as a result of an agreed instalment scheme. Even though the full payment has yet to be collected, the creditor must still pay full tax on the amount receivable invoiced in the current tax year.

 Offer a discount on the debt to secure quick payment

Where payment of a single sum is preferred to instalments, you may consider offering a discount on the debt. This may incentivise the debtor to pay the discounted amount in one lump sum.

The purpose of giving a discount is to avoid dragging out the payment process. Therefore, discounts should ideally be offered subject to full payment of the discounted sum either immediately, or within a short grace period.

A discount can also be offered contingent on full payment within a specified period. For example, if I am owed a debt of $20,000, I may choose to offer a discount of 10% (bringing the final payable amount down to $18,000) – provided this sum is paid within three working days.

If payment does not come through by the deadline, the discount will be revoked. Offering a discount subject to a payment timeline incentivises the debtor to clear his debt by a certain date. It also increases the odds of the creditor receiving payment (albeit a shaved-off one) quickly.

Your contract with the debtor may allow you to charge interest or a late fee in the event of late payment. In such a case, one creative way to give a discount without taking too much of a loss is to offer for the interest/late fee to be waived if the principal payment comes in by a certain date.

If you wish to offer a discount to your debtor, you should put this offer in writing. State the amount you are prepared to waive off the total bill and the total payable, after the discount. If you are offering the discount subject to payment by a specified date, you should say so, and also state the date clearly. You should also make it very clear that if you do not receive payment (as opposed to the debtor sending out payment) by the deadline, the discount will be called off.

For book-keeping purposes, discounts may need to be formalised by issuing a credit note to your debtor.

Adopt electronic payment methods

Because most businesses have been ordered to suspend work, your debtor may have legitimate difficulties going into the office to cut you a cheque or to sign off on outgoing payments.

If you are not already doing so, you may wish to consider giving debtors the option to pay you through bank transfer. Corporate bank accounts can sign up for PayNow with their UENs. These modes of banking allow payments to be transferred instantly (even between different banks) and from the comfort of a home office. Debtors thus have less reasons to avoid paying you by using the stay-home requirement as an excuse.

Seek legal advice as a last resort

If playing nice falls through, and your debtor continues to default on payment, you may wish to consider seeking legal advice. This course of action makes sense if the sum owed to you is significant and/or if you insist on going after the debtor as a matter of principle.

Your lawyer will likely recommend that you send a letter of demand (LOD). However, before you take this step, it would be helpful for you to have at least made at least one attempt to recover the debt or to negotiate with the debtor by yourself. If you have taken these steps, keep records of them.

For example, if you have sent multiple WhatsApp reminders or emails to the debtor chasing for payment, make sure you save these messages or emails somewhere. They will come in handy because your lawyer can then emphasise in the LOD that repeated attempts were made to recover the debt to no avail. If the debtor replies to you to acknowledge that there is indeed an outstanding debt, save these replies too. These prevent the debtor from slinking away later and denying that the debts even exist.

An LOD from a lawyer signals to the debtor that you are dead serious about recovering the debt. A debtor may comply with the LOD. But even if he does not, the LOD may set the stage for negotiations between you and the debtor (as opposed to the debtor simply ignoring you and/or the debt).

If an LOD does not work, or if the negotiations that follow it yield no results, your lawyer may advise you to start legal action against the debtor. Certain sums under $20,000 may be recoverable in the Small Claims Tribunal. Other larger sums, depending on the quantum, may have to be recovered by filing a full-fledged lawsuit in either the State Courts or the High Court. A competent lawyer will advise you accordingly.

But an underlying word of caution is this: starting a lawsuit is an exercise in balancing the cost with the benefit. If the debt owed to you justifies the costs of suing and paying lawyers, you may consider starting an action. If not, ask your lawyer about what other less costly alternatives there are through which you can recover your debt. It is never worthwhile to throw good money after bad money.


This article is written by DC Law LLC. The contents of the article do not constitute legal advice. If you would like to consult us, we are contactable by email at or by phone at +65 6589 8118.

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