How the debt collection process works, point by point

Article chapters:

• The vast majority of domestic entrepreneurs find themselves in the situation of debt collection
• Zero Step-Advice for next time that can save you the stress of dealing with debt
• What should a pre-litigation demand letter contain?
• The second step in debt collection – filing a lawsuit
• When debt collection does not end, even after winning a judgment in court
• To whom to turn to when recovering a debt?

The vast majority of domestic entrepreneurs find themselves in the situation of debt collection

In 2017, the company IPSOS conducted a survey of a sample of 305 entrepreneurs to find out how they solve their overdue invoice problems. The survey included companies with up to 50 employees issuing B2B invoices to to client, to both companies and self-employed persons as well. What conclusions did they find?

We consider it interesting that one in ten entrepreneurs interviewed will give up debt collection due to legal complexity and would rather accept a loss. If someone owes you, don’t give up. After reading our article, you will find out that the recovery of your claim is not as complicated as it may seem at first glance.

The reservation contract should include full details on all parties, a detailed description of the property, and the amount and the method of payment of the reservation fee as well.

Zero-Step Advice that will save you the stress of dealing with debt again

We know, sometimes it is too late. However, we believe prevention is a zero step.

In practice, we have often encountered the fact that especially small traders do not negotiate contracts in writing, or require any confirmation of the arrangement of goods or delivery of goods. In this way, they create the preconditions that the invoice may not be paid.

Therefore, we recommend in each case:

• Have a clearly written contract, or at least a summary of the terms of payment in a written order or an order by email.
• Clearly outline the conditions of price and payment for a fixed date, or via the fulfillment of a certain condition, (for example by completing the reconstruction of a specific part of a house). It goes with saying that contractual penalties should be clearly set out by date or condition as well.
• You can also add the option of not paying the invoice (or a portion of it) if the performance would show defects.
• It is advisable to check the reputation of clients and business partners in advance, and in the case of any risks, to require stricter conditions regarding payments and guarantees.
• Do not download generic samples of contracts, or if so, have them checked by an attorney.

Pre-litigation demand letter

We know from our practice that a high percentage of cases in the recovery of receivables will be resolved by a pre-litigation demand letter for payment of the amount due. Sending a reminder is not mandatory, however: if you omit this step,the court will most likely not award you the costs of the proceedings even if you succesfully win your case. Prior to sending a pre-litigation demand letter, it is advisable to check up on the debtor in the relevant registers to see if he or she is in insolvency or facing multiple executions. In such cases, debt recovery would be substantially more complicated. In this article, however, we will continue to work with the assumption that your debtor is financially sound and is able to pay the receivable.

What should a pre-litigation demand letter contain?

There are a number of legal requirements, the omission of which could deprive you of the cost of legal representation. In the event of a winning case, the debtor will pay the attorney’s costs for you, if you follow the correct procedure. So what not to omit in the pre-litigation demand letter?

• Description of the acts or circumstances on the basis of which the receivable arises,
• the total amount of the debt,
• the length of time within which the debtor has to pay the claim (the minimum is 7 days),
• payment details (such as the bank account) for sending the amount due,
• ideally, an invitation for the debtor to express his or her opinion, within a certain period of time, on whether he or she agrees to an out-of-court settlement of the claim, as well as a notice to file a lawsuit (and the associated higher costs of doing so) if they refuse to pay.

Send the pre-litigation demand letter for payment of the amount due to the last known address of the debtor. In the case of legal proceedings, it is not necessary to prove that it has been delivered. Just prove that it has been sent. Even so, we recommend a certified shipment in order to prove both shipment and receipt of the letter.

At this stage, however, it is appropriate to consider whether it is not worth having a pre-litigation demand letter written by an attorney, instead. Not only will you avoid mistakes that can bring you higher costs in any court proceedings, but a letter written by an attorney also has a greater psychological effect on the receiver.

In addition, the summons contained in the pre-litigation demand letter has to correspond exactly with the subject of the lawsuit, i.e., the legal claim. Many people make the mistake of believing that a simple demand will suffice, and as a result the court does not have to award the costs of the proceedings. This is the way that you can lose a lot of money!

In our experience, we find that once an attorney is signed onto the challenge, it radically increases the probability that the claim will be paid, and in a timely manner. It has repeatedly happened to us that a counterparty who refused to pay several outside debts, in fact paid the debt of our client simply because the client had chosen to have their payment demand sent by our attorneys.

How can debt recovery be resolved out of court?

The counterparty is most often interested in an agreement on a repayment schedule, or in partial-debt forgiveness and the conditions of this deferment. A third possibility is to conclude a settlement agreement, whereby the existing obligation is canceled and replaced by a new one.

In any case, it is necessary for the debtor to acknowledge his debt in the agreement. It may happen that despite the effort to resolve the claim out of court, this will not happen. Keep in mind that in the end a wrongly written agreement will make your position in a court proceeding more difficult.

At some point you may certainly find that the debtor will not pay the claim, and that there is no way to settle the dispute out of court. In that case, you have no choice but to sue (litigate).

The second step in debt collection – filing a lawsuit

The filing of a lawsuit and the subsequent legal proceedings raise a lot of questions. We will try to answer the questions that we most often hear from our clients when preparing for court recovery.

1. Where, when and how to file a lawsuit? Lawsuits are usually filed in the district court located near the debtor’s domicile or registered office. It is a matter of course to submit all documents, contracts, emails and other documentary evidence which show that you have an existing claim with the debtor, and that he has still not paid to you.
2. I have read about electronic payment orders. What are their benefits? An application for the issuance of an electronic payment order is a specific type of lawsuit, filed in electronic form. To apply, you usually only need to have a signed contract with a debtor, or a confirmed invoice for the delivery of certain goods or services. Its advantages include faster settlement compared to conventional court proceedings, and of course lower associated court fees, typically 4% of the total amount recovered, instead of 5% in conventional court proceedings. On the basis of an electronic payment order, the court shall order the defendant to repay the claim within 15 days, or to lodge a statement of opposition within the same period. If the defendant does not file a statement of opposition, the entire court proceeding concludes, and the electronic payment order has the same effect as a final judgment. However, in the case of opposition a court hearing will be ordered. We definitely recommend this procedure. We recently had a payment order in hand less than a week after submitting our proposal! So it’s really very fast.
3. Does the electronic payment order have any disadvantages? Well, this is not necessarily a complete disadvantage, but the recovered receivable must not exceed the amount of CZK 1,000,000. Additionally, the electronic payment order must be delivered to the debtor directly. This can be a problem in some cases, especially for notorious non-payers. In a case of an undelievered payment order, the court will automatically cancel it and the plaintiff will lose this chance at a quick solution. However, even in these situations it makes sense to at least begin with the submission a proposal for the issuance of an electronic payment order, as it is the fastest, easiest and least expensive way to get paid by the debtor.
4. How much does the court process cost when recovering the claim? It is necessary to count on paying the court fees, plus the cost of an attorney. If you are not successful in the court proceedings, it is necessary to also consider that you might have to pay the costs of the other party, as well. Therefore, it is to your advantage to have an experienced attorney who can estimate your chances of winning the case before the court proceedings begin, and if necessary, recommend for you to withdraw the case. To bring legal action can be a psychological tool all by itself. However, success can never be estimated at one hundred percent. As experienced attorneys say, going to court is like going to sea, and you never truly know what will happen.
5. Court fees – how much will I pay? It always depends on the amount recovered. If the amount is CZK 20,000 or less, then the court fee is CZK 1,000. If you are recovering a claim between CZK 20,000 and CZK 40,000,000, the court fee is 5% of the amount recovered. With an electronic payment order the fees are lower, and of course the law also provides for cases where you may be exempt from fees.
6. What if I don’t have a contract, but only an order by email? Don’t despair. Anything can be used in court as evidence, and even the recognition of a debt in email form, or in front of a witness, can succeed. However, a well-prepared written contract is, of course, a better starting position. The electronic payment order is issued by the court whenever the claim appears to be justified from the application, it is usually sufficient to base it on invoices and relevant correspondence.
7. How long will it take to get my money? This is a question with an unclear answer. It always depends on the specific court and its workload. The length of proceedings can range from a few months to several years. The activity of the defendant can also be a decisive factor.

“I turned to the Dostupný Advokát for help when someone defaulted on a debt. Dostupný Advokát advised me on how to proceed. Our dispute went to the courts where Dostupný Advokát represented me. I won the case, and I can highly recommend the services of this site.” Štěpán Mičunek, jednatel HVFree s.r.o.

When the debt collection does not end, even after winning a judgment in court

Unfortunately, there are also situations where you succeed in court, but the defendant does not fulfill his obligation to pay as stated in the court decision. In such a case, two options are possible.

One is enforcement of the decision through a court, or a motion for execution through a Court Executive Officer. In the case of the second variant, a number of general forms of execution motion are circulating on the Internet. However, no one guarantees you their completeness and accuracy, so in this case it is advisable to simply consult with an attorney. You can then file a writ of execution with any Court Executive Officer – you can find an available list on the Court executive officer´s website.

To whom to turn to when recovering a debt?

When searching on the Internet, a number of collection agencies will show up. We will not evaluate their procedures here, but an interesting article on iRozhlas.cz addressed them. You can use their services only in the case of out of court recovery of debts, otherwise it would be unlawfully provided legal services, which is a misdemeanour or even a criminal offense under the Advocacy Law.

In the case of a law firm, you have guaranteed expertise, legality and at the same time the possibility of obtaining a so-called judgment (remuneration to an attorney for legal services provided), which the court usually grants in the case of winning a court proceeding. In the end, the debtor must pay not only the claim, but also the amount for your attorney. If you want to have the claim resolved as soon as possible, Dostupný Advokát will send a pre-litigation demand letter to the debtor for you within 3 days.

There is a lot of misinformation about how debt and debt recovery works. In most cases, however, it is neither complicated nor as financially and psychologically demanding as most people assume. Most of the cases will be resolved in the first act, in the form of a pre-litigation demand letter. In the case of a lawsuit, however, you can let go of any worries. Since you will be represented by an attorney, you will be perfectly prepared for every issue that arises, and in the end the debtor will have to pay for your attorney’s fee.

Are you dealing with a similar problem as discussed above?

The team of online attorneys at Dostupný Advokát will solve it for you.

Pre-litigation demand letter

We will stand up for you if someone violates your rights. We will process a complete pre-litigation demand letter for you and make sure you get back what belongs to you. We can do it quickly, correctly and professionally. You can also pay after the service is provided.