It is not uncommon in business to have customers, buyers, vendors, or partners owe you money. Sometimes it is a simple issue of a past-due bill, and a reminder is all that is need to settle the debt. Other times, debts drag on for an unacceptable amount of time and you may consider taking the debtor to court. However, before making this move, learn about the pre-trial actions that could settle the debt without the complication of a court proceeding.
First Steps of Debt Collection
You will want to make an attempt at an amicable resolution of the debt before taking more extreme measures. No matter how big the debt is that is owed to you, your first step will be to inform the debtor of the debt. Whether it is a client who owes a small amount for services rendered or a buyer who owes thousands of dollars for a shipment he has received, you should first make sure the debtor is aware of the amount that is owed, the date the payment was due, and the date you expect to receive payment, as well as an itemization of any interest or service charges that are owed. You may make this initial notification by phone or by email.
Generally, the debtor is given anywhere from a week to 30 days to settle the account, but the period should not exceed 60 days. This stage of debt collection is usually handled directly by the business, but if this does not settle the matter, you may want to engage an attorney at this point.
The Next Stage: Formal Notification
If a friendly reminder does not get the debt paid, it is time to move on to a more formal request for repayment. While a creditor could undertake this stage independently, it is often more effective to have an attorney who is skilled in debt negotiation handle this next stage. It will be important to have detailed information about the debtor, such as his full legal identity, address of business headquarters, and basic financial information.
A formal attorney’s demand letter should contain a juridical explanation of the creditor’s claims with links to applicable legislation. Sometimes debtors are simply not aware of possible financial losses for their businesses if they delay payment. So the possible negative consequences of payment delay—such as penalties for late payment, high litigation costs that will eventually be borne by the losing party, etc.—should be clearly emphasized by the attorney in his notification.
The creditor—or an attorney on his behalf—sends a formal letter demanding payment of the debt and informing the debtor of the consequences for not complying. The debtor should not be given more than 90 days to reconcile his account. Russian legislation contains certain formal requirements to the content of the demand letter and the form of its delivery to the other party. A demand letter with formal defects cannot be recognized as a pre-trial claim, if the debtor eventually decides to bring the matter to the court.
Negotiation and Mediation
If the debtor acknowledges the debt and is willing to pay, but simply does not have the money to pay the full amount at once, an agreement may be reached between the creditor and debtor at this point. A skilled negotiator will be aware of the debtor’s financial situation and will ensure that his client—the creditor—gets the maximum he can expect from the debtor. This may involve payments over a period of time or a reduction of the claim to an amount that can be reasonably expected to be repaid. When drafting an amicable agreement, the attorney should take into consideration the financial position of the debtor. Such settlement agreement should also contain clear mechanisms of its enforcement or termination in case things go wrong.
If this attempt at an amicable resolution fails, the creditor is entitled to bring the matter to court. First, the attorney would check that all pre-trial procedures prescribed by the contract or by the law have been duly performed.
With the help of an attorney, the creditor may wish to first obtain a writ of execution, whereby the court will compel the debtor to pay without having to go through a trial. This can only be used if the debtor has admitted to the debt and the court is given full documentation of the debt. If the debtor places any objections—which happens in the majority of cases—the writ of execution will be dismissed. If the attempt to receive the writ of execution fails, the next step is to go to trial.
Don’t Attempt Debt Collection Without an Attorney
From the earliest stages of debt collection, having a law firm such as Jus Privatum act on your behalf will give your claim authority and will be the most effective method of compelling the debtor to pay. While there are numerous debt collection agencies in Russia, this is not a route a legitimate business will want to take. Private debt collectors work on commission and will often go to extreme—and illegal—lengths to collect payment. You do not want to associate your name with these practices. Contact the experienced corporate attorneys at Jus Privatum to learn how we can assist you in the collection of funds owed to you.