Handling Uncollected Accounts Receivable: A Guide for Japanese Businesses

Here, we’ll delve into a challenge that many individual business owners and SMEs face in our country: What to do when you can’t collect your accounts receivable. It’s common in Japan for payments to be scheduled for the end of the following month. But what happens when those payments don’t come through? Let’s explore the steps to take in such scenarios.

Promptly Demand Payment

Act immediately when you realize a payment hasn’t been made by its due date. It’s possible your client forgot. When reaching out, maintain a professional tone. Politely remind them of the amount owed, the payment deadline, and any penalties for late payment.

Effective Methods to Demand Payment

There are multiple avenues to remind clients of their dues:

1. Phone Calls: A direct approach, but not everyone’s preferred method.
2. Emails: Essential and effective. Highlight the invoice details, due amount, and the final payment deadline. If applicable, mention the Subcontract Act stipulations, especially if you and your client have a significant capital difference.
3. Content-Certified Mail: This not only serves as proof of your demand but also exerts added pressure on the client. Plus, it can extend the statute of limitations for collections by six additional months.
4. Small Claims Action: This is a quick and straightforward legal route if the owed amount is 600,000 yen or less. However, it’s always better to have preventive measures in place.

Preemptive Measures

Before entering into a business agreement, consider the following:

1. Set a credit limit.
2. Evaluate your client’s creditworthiness.
3. Consider security measures like advance payments, deposits, or credit card registrations (though this might not be feasible for all clients).
4. Diversify your client base to spread risk.
   If both accounts payable and receivable exist with the same party, consider offsetting them.
5. Think about accounts receivable insurance, though it can be expensive. If you opt for this, be selective about which clients you cover.

Conclusion: Stay Calm and Carry On

While uncollected payments can be stressful, it’s essential to remember that such challenges are part and parcel of running a business. Take the necessary steps, but don’t let it overwhelm you. Company, after all, has its ups and downs.