What do you do if the foreign debtor does not pay? Early expert intervention proves itself to be advisable.
Secure business abroad: recovering receivables
Professional foreign debt collection for the recovery of dishonoured receivables
So what is to be done when the contract is already signed and the goods are delivered accordingly, but you are still waiting for the promised receipt of payment?
Your own reminders are hampered by unfamiliar legal provisions and inadequate knowledge of the language and in practice reminders from a “distant foreign pen pal” are often not taken seriously. If this is the case you should transfer your receivables as quickly as possible to an international debt collection agency, such as Creditreform International. We work together with a worldwide network of Creditreform companies, partner organisations and lawyers, who are specialised in the recovery of debts in each country. Due to this close proximity to your debtor, obstacles which can arise cause by diverse languages, physical distance and foreign legal systems can be overcome.
Bureaucracy and the degree of legal stability in the country of each debtor will dictate whether problems will arise in the legal enforcement of payment claims. Sometimes even in neighbouring countries there are considerable differences in legal provisions.
- The success rate in the international recovery of debts is influenced by three factors
The success rate in the international recovery of debts is influenced particularly by the following three factors:
- Identification: Can the debtor be clearly identified at a current address and registered office? In other words, can it be guaranteed that this is not an offshore or letterbox company?
- Proof of claim: Was the contract signed according to the legal requirements? Do you have a legally valid and signed notice of receipt of the delivered goods?
- Financial solvency: Is your debtor financially solvent? Besides liquidity and fraud risks, even debtors who are willing to pay may delay due to national currency laws, as it can still be the case in Russia and the Eastern Transition countries.
- Recovering Receivables
Preferably one should always try to recover any outstanding foreign debts out of court. If however, you do not attain a positive outcome from a debt collection case with your debtor, legal action should only be taken if the debtor can be clearly identified and is solvent and the claim can be proved. These questions can easily be clarified by means of a credit report and the relevant contract documents. As is the case in many countries, legal systems can invariably differ. It should be enquired as to whether the national time limits in relation to filing an action and time lapse can be observed.
- Legally enforcing a claim abroad
A further critical factor to consider is the cost of legally enforcing a claim abroad. Lawyers fees are often regulated differently than at home: In most cases there are no official fee rates, but lawyers fees are freely set at an hourly rate and have to be paid even in the event of a court victory. Moreover, you must face additional court fees, translation and debt collection costs, which might only be partially claimed even in Western Europe. For this reason you should carefully weigh up the prospects of success and the related costs before initiating legal action.
In the EU the basic principle applies that an enforceable judgment of a German court is recognised in all other member states. Basically a foreign court only formally examines the judgment, the correct preparation of the preliminary procedural document and the judgment on the accused party, so that it is not necessary to commence the procedure anew. Such a simplified acceptance procedure is only available in countries where a corresponding agreement on recognition and enforcement of court decisions exists. If such an agreement does not exist, it can only be executed according to the regulations in each respective country.
- Clarify the convention to be applied in the contract before signing
Irrespective of a potential client’s solvency assessment, you should always clarify the convention to be applied in the contract before signing with a foreign partner. This may be the UN convention on contracts, to which almost 60 countries belong, including China, France, USA, Scandinavia and Russia, or the convention of a particular country. Via a so-called reference contract, the applicable law and jurisdiction shall be expressly agreed upon, for example German law. In almost all countries worldwide statutory provisions allow contracting partners to enter into contracts amicably.
