1 min read
Credit management
20 April 2020

In times of crisis, liquidity is essential for a company’s continuity. An important part of maintaining sufficient cash flow is managing debtors efficiently. Good credit management limits credit risks and optimises working capital, which is crucial in difficult times. Are you having problems with customers who ask for a postponement of payment, or just do not pay? Do you have customers who you know are at risk of not surviving this crisis? If a company has properly safeguarded its rights as a creditor, as a result of which risks have been identified and anticipated at an early stage, such problems have less impact on the company. It also makes it possible to make proper arrangements for a customer’s deferral of payment.

If a customer does not need to pay upon delivery of the goods and services, a company runs the risk of not being able to collect payment afterwards. In order to mitigate that risk, it is of course prudent to assess the credit risks of new customers and make payment arrangements on that basis. Thought could be given to requesting annual accounts or BKR data in order to make that assessment. It is important which payment term is used and, in connection with this, whether the company wishes to ask for extra safeguards, as a result of which he has priority over other creditors of its customer.

Retention of title

The most common way in which a supplier can mitigate losses as a result of breach of contract by the buyer is to include a retention of title in the agreement. In case of a retention of title, goods are delivered, but ownership does not transfer to the buyer until an additional condition is met. That condition is often payment of the direct purchase price, but can also be payment of all outstanding purchase amounts arising from that same legal relationship (e.g. a purchase framework agreement). If and as long as the condition is not met, the seller remains the owner and can claim his property from the buyer in the event of default. However, it is usually agreed upon that the buyer may resell the purchased goods in the ordinary course of business. The supplier is not protected by its retention of title if the buyer has already resold the goods to a third party acting in good faith. The seller can also invoke retention of title in case of the buyer’s bankruptcy. In some cases, however, the tax authorities will have priority for the collection of so-called business tax debts (e.g. payroll tax, turnover tax and dividend tax).

Right of pledge

In addition to a retention of title, a supplier can also reserve a right of pledge. In that case, the seller transfers ownership of the goods subject to vesting a right of pledge. This way, the buyer obtains ownership of the goods, but subject to a right of pledge. Contrary to the retention of title, the reserved right of pledge may serve as security for all payment claims that the supplier has or will have against the buyer. The seller may establish a right of the pledge in combination with a retention of title: it sells and transfers goods subject to a retention of title, supplemented by a reserved right of pledge in case the retention of title lapses and the buyer still owes other debts to it. If the buyer fails to timely pay its debts, the seller may enforce its right of pledge. However, contrary to the retention of title, when exercising a right of pledge the seller may not repossess the goods. In the event of the buyer’s bankruptcy, the Seller may, in principle, exercise its pledge as if there were no bankruptcy. It should be noted that the tax authorities’ priority right of seizure of property found on the premises of the buyer does take precedence over the seller’s non-possessory pledge.

The disadvantage of the non-possessory pledge is that it must be established by means of a private deed (to be registered with the tax authorities) or a notarial deed. This can lead to practical objections. Usually, the buyer will be allowed to resell the goods within the ordinary course of business. If the property is disposed of without such an arrangement, the seller’s pledge will, in principle, continue to exist. However, the seller is not protected if the buyer has already resold the goods and the new buyer was in good faith, because he was not aware that the goods had been subject to a right of pledge.


The seller may also ask the buyer to provide a bank guarantee. At the first written request of the seller, the bank will pay out the agreed amount. This offers the seller straightforward security. However, when requesting the bank guarantee, the buyer must have sufficient working capital to cover the amount of the guarantee. Furthermore, as the bank requires a fee this can be costly. Instead of a bank guarantee, the seller can also request a parent guarantee or a guarantee from another third party (in the form of joint and several liability or a suretyship). The advantage is that there are (generally) no costs involved for the buyer. However, the disadvantage is an increased insolvency risk for the seller: if the buyer is in financial difficulties, this may also apply to its group companies.

Right of reclamation

The right of reclamation protects the seller against (partial) non-performance by the buyer in case of a purchase agreement for goods, in which case the seller is entitled to reclaim the sold goods. In order to be able to successfully exercise this right, it is required that (i) the seller invokes this right, (ii) it is invoked by means of a written statement to the buyer within six weeks of the purchase price becoming due or sixty days after the goods have been stored by the buyer, and (iii) the goods concerned are movable property. By invoking the right of reclamation, the buyer loses its rights and the seller regains his rights of ownership. In the meantime, the buyer is the owner. If the buyer is bankrupt, the seller can still invoke the right of reclamation.

Right of retention

The right of retention also provides the creditor with a high priority right. This concerns a creditor’s right not to return goods in its possession to the owner as long as the fees for his services have not been paid. However, to invoke this right it is required that the creditor in fact possesses the goods concerned. The right of retention is statutory right; it needs not to be agreed upon in advance. This right can also be invoked in case of the debtor’s bankruptcy.

Conditions for deferment of payment

If you are confronted with a request for postponement of payment from one of your customers, it is important to deal with this in a well-considered manner. In principle, you want to avoid risk and therefore be paid as soon as possible, but if the customer is currently unable to do so, there is sometimes little else to do but talk about a postponement of payment. The reason therefore is that if you have the position of an unsecured creditor, and have not agreed upon any rights as mentioned above, you often do not receive any (or little) payment in a bankruptcy. You will also lose a customer in such a bankruptcy and therefore future turnover. However, this does not mean that you cannot impose conditions on your customer when granting a postponement in payment. For example, you can demand default interest or an adjustment of certain conditions of your current agreements, but you can also ask for security such as a bank guarantee. You should be aware that, under certain circumstances and if the customer goes bankrupt after all, the bankruptcy trustee will be able to annul some of those extra rights on the basis of fraudulent conveyance. It is therefore important that you seek proper advice in such cases.