Debt recovery involves recovering money owed by a customer, supplier or another business. When started early and supported by proper records, it is mainly a matter of follow-up and negotiation. When delayed, it may require formal notices, mediation or legal action.

The debt recovery process step by step

1. Confirm that the amounts agree and collect the contract, invoices and proof of delivery.
2. Check whether the buyer is disputing any part of the debt.
3. Send reminders and confirm the promised payment dates in writing.
4. Issue a formal demand notice with a clear deadline.
5. Attempt mediation if you plan to file a commercial suit.
6. Choose proceedings appropriate to the amount and the buyer.

Legal routes for debt recovery

Mediation and commercial suits: Under Section 12A of the Commercial Courts Act, a commercial suit that does not seek urgent interim relief generally must undergo pre-institution mediation. The Supreme Court has held this requirement to be mandatory.

Insolvency: To pursue a debt through the NCLT, an operational creditor must send a demand notice under Section 8. The debtor then has 10 days to pay or raise a dispute. The minimum default threshold is ₹1 crore, and a genuine pre-existing dispute can prevent the insolvency process from proceeding.

The MSME route: Registered micro and small suppliers have an alternative under the MSMED Act. It establishes a payment deadline of up to 45 days, or 15 days where there is no written agreement, and provides for interest at three times the RBI bank rate. Claims may be pursued through the Micro and Small Enterprises Facilitation Council.

Common debt recovery mistakes

• Waiting too long before taking action.
• Skipping mandatory pre-institution mediation.
• Maintaining incomplete contracts, invoices or delivery records.
• Using insolvency threats for genuinely disputed invoices.

When to bring in a debt collection agency or debt recovery agency

When internal follow-up has stalled, a debt collection agency can take responsibility for reminders and negotiations. For disputed, high-value or long-overdue debts, a debt recovery agency may also handle formal notices, mediation and coordination with advocates.

Effective debt recovery requires early action, accurate records and the right route for the circumstances. The information in this article is general in nature and is not legal advice.

How PayAssured can help

PayAssured assists businesses with debt recovery from the first follow-up through structured escalation. If you have overdue invoices, contact PayAssured to review the available options and plan your next step.