In the course of a company’s operation it often happens that a contractual partner pays late, disputes the invoice, delays performance, or simply does not respond to enquiries. Managing receivables is then not only a financial but also a legal question: the company has to act firmly while proceeding lawfully, in a documented way and in a manner that can be proved later as well.
Debt collection does not necessarily mean an immediate lawsuit. In many cases a properly drafted lawyer’s letter of demand, a payment agreement, an order for payment or the prospect of liquidation proceedings may already be enough for the debtor to pay. It is important, however, that the company should not act hastily, but on the basis of a considered legal strategy.
1. First step: checking the legal basis of the claim
Before the company takes legal steps, it is advisable to examine whether the claim can be properly substantiated. In this context it is worth reviewing in particular the following documents:
- the contract or the order,
- the offer, the confirmation, the certificate of completion,
- the invoices issued,
- the e-mail or other written communication,
- the delivery notes, work sheets and records,
- any earlier partial payments or acknowledgements of debt.
For the purposes of enforcing the claim it is especially important that the legal title, the amount and the due date of the debt can be precisely determined, together with the reason why the debtor has not paid. A different legal instrument applies where the debtor simply does not pay, and a different one where it disputes the performance or the amount of the invoice.
2. Payment notice – why does it matter how it is drafted?
Many companies send a payment reminder or a polite notice, but these are not always suitable to serve as the basis of more serious legal proceedings later on.
A well-drafted payment notice should contain:
- the exact details of the parties,
- the legal title of the debt,
- the exact amount of the claim,
- the identification of the invoices or contracts,
- the payment deadline,
- the bank account number,
- the claim for default interest and costs,
- and what legal proceedings may be started in the event of non-payment.
In matters between business partners a lawyer’s letter of demand often carries more weight than an internal company reminder. It makes clear that the creditor does not treat the debt as a purely administrative matter, but is ready to enforce its claim by legal means as well.
3. Default interest and the flat-rate recovery fee
If the partner does not pay by the deadline, the company may claim not only the amount of the invoice but default interest as well. For contracts between businesses the Civil Code contains separate rules on the late performance of a monetary debt.
Late payment cannot remain without consequences. The creditor business may incur financing, administrative and legal costs because of the delay. In such cases, in addition to default interest, a flat-rate recovery fee may also be claimed where certain conditions are met.
In practice, however, it is advisable to examine in every case whether the contract contains a separate provision on default interest, contractual penalty, recovery costs or the reimbursement of the costs of enforcement.
4. Order for payment: a quick solution for an undisputed monetary claim
If the debtor does not pay but the claim can be precisely determined as a monetary claim, order for payment proceedings can be initiated. These are non-contentious proceedings before a notary public, which in many cases can be faster and more cost-effective than litigation.
An order for payment may be particularly effective where:
- the amount of the claim can be precisely established,
- the debtor has a domestic address for service,
- the claim can be substantiated by documents,
- the debtor has not previously disputed the debt on the merits,
- the creditor wishes to take swift legal action.
If the debtor does not file an objection to the order for payment, it may become final and enforceable. If, however, the debtor files an objection, the proceedings may turn into litigation and the claim must then be enforced before a court.
5. When is it necessary to start litigation?
Litigation may be needed primarily where the debtor disputes the claim, for example by arguing that:
- the creditor did not perform properly,
- the service was defective or incomplete,
- no contract was concluded,
- the amount of the invoice is incorrect,
- it is entitled to a set-off,
- or the claim has already become time-barred.
In such a case the court examines the parties’ assertions in the course of evidentiary proceedings. In the lawsuit the contract, the certificate of completion, the correspondence, witness testimony, expert evidence and every document that proves performance or the existence of the debt may be relevant.
Litigation may be slower than an order for payment, but in the case of a disputed claim it is often the only appropriate legal instrument. In such cases what is particularly important is proper litigation representation.
6. Liquidation proceedings: when can they be used?
In the case of debts between companies, initiating liquidation proceedings may also arise. This, however, is not a general collection tool but insolvency proceedings, and can therefore only be used with care.
Liquidation proceedings may primarily be considered where the claim is based on a contract, is due, is undisputed or acknowledged, and the debtor fails to pay despite an appropriate written notice. When preparing a liquidation petition it is particularly important that the content and the service of the payment notice are adequate, because in the event of a formal or substantive deficiency the proceedings may be unsuccessful.
Holding out the prospect of liquidation proceedings is in many cases a strong means of applying pressure, but it should only be used where the statutory conditions for it genuinely exist.
7. Enforcement: where there is already an enforceable instrument
If the company already has a final order for payment, a final judgment, a notarial deed or another enforceable instrument, enforcement proceedings can be started.
In the course of enforcement the following may take place, among others:
- direct debit against a bank account,
- attachment of wages or other emoluments,
- seizure of movable or immovable property,
- enforcement against a business share or another property right.
The success of enforcement largely depends on whether the debtor has assets available for enforcement. For larger claims it is therefore advisable to consider the debtor’s economic situation, operation and financial position even before legal steps are taken.
8. Instalment payment and settlement: when is it worth reaching an agreement?
Litigation or liquidation is not the best solution in every case. If the debtor shows willingness to pay but relies on a temporary liquidity problem, it may be advisable to conclude an instalment payment agreement.
In such an agreement it is important to set out:
- the exact amount of the debt,
- the debtor’s acknowledgement of the debt,
- the amount and the deadline of the instalments,
- the default interest,
- the legal consequences of non-payment,
- and in what case the creditor may start legal proceedings immediately.
A properly drafted instalment payment agreement can at once give the debtor a chance to perform and secure the legal position of the creditor company should the debtor fail to pay again.
9. What should a company not do if the partner does not pay?
When enforcing a claim, steps that may later cause legal risk must be avoided. It is not advisable, for example, to send threatening, personal or misleading messages, to name the partner publicly as a debtor, or to apply pressure that goes beyond the limits of lawful enforcement.
Firm action is permitted, but it must always be lawful, proportionate and capable of being proved. A poorly worded notice, a premature liquidation petition or an unfounded legal step can even weaken the position of the creditor company.
10. How can a lawyer help with debt collection?
With the involvement of a lawyer, the strategy that is most likely to lead to a result can be developed at the very first steps. The solution is not the same in every matter: in some cases a strong lawyer’s letter of demand is enough, in others an order for payment, litigation, a liquidation petition or enforcement is needed.
Dobrocsi Law Office assists businesses in particular with:
- the legal assessment of receivables,
- preparing lawyers’ payment notices,
- drafting instalment payment and debt acknowledgement agreements,
- order for payment proceedings,
- enforcing claims in litigation,
- preparing liquidation proceedings,
- enforcement proceedings,
- and the ongoing, monthly-fee legal support of companies.
Summary
If a business partner does not pay, the most important thing is swift but legally considered action. The longer a claim remains unaddressed, the greater the risk that the debtor’s financial position deteriorates, that the evidence becomes harder to obtain, or that enforcing the claim becomes more complicated.
Lawful debt collection does not consist merely of sending letters of demand. Choosing the appropriate legal strategy — payment notice, order for payment, litigation, liquidation or enforcement — always depends on the circumstances of the given case.
If your company is faced with outstanding receivables, a non-paying partner or a disputed invoice, please contact Dobrocsi Law Office with confidence. We help you assess the legal options and choose the most effective lawful solution.
English 
Magyar