Video: What Should You Do If Someone Doesn’t Pay Your Invoice?

Quick Overview: What to Do About an Unpaid Invoice

• Check the due date and supporting documents. Verify that the debt actually exists, is due, and that you can document it with, for example, a contract, purchase order, invoice, or correspondence.
• Send a reminder to the debtor. Specify the amount owed, the invoice number, and set a specific payment deadline.
• Calculate the additional charges associated with the debt. Depending on the circumstances, you may claim, in particular, statutory or agreed-upon late-payment interest and, if applicable, a contractual penalty.
• Send a pre-litigation demand before filing a lawsuit. If you subsequently wish to claim reimbursement for litigation costs, you generally need to send a demand for payment at least 7 days before filing the lawsuit.
• Enforcement proceedings can only begin after an enforcement order has been obtained. An unpaid invoice alone is generally not sufficient for a bailiff to begin enforcing the debt.

If the debtor does not respond to your demands, our attorneys can assess the enforceability of the claim, prepare a pre-lawsuit demand, and propose the next steps so that debt collection does not cost more time and money than necessary.

If you decide to collect a debt, it essentially does not matter what type of debt it is. Our clients most often come to us with debts arising from business activities, but these may also relate to rent or other types of relationships.

Prevention Is Key

Many business owners have not adequately addressed the risks associated with their business. Yet the foundation is always a well-drafted contract. However, don’t think of a contract as just a typical “piece of paper” that both parties sign. We enter into contracts every day—for example, when we go shopping or board a tram. They can therefore take many different forms.

A contract should have clear rules

If you can refer to your General Terms and Conditions (GTC) as part of an order, be sure to do so. Conversely, you can also exclude the application of your business partner’s terms and conditions.

If the other party is a consumer, be cautious. The law prohibits so-called “surprise provisions in a contract.” This refers to provisions in the terms and conditions that a consumer would not normally expect. These may include provisions regarding contractual penalties, etc.

What can be recommended as a good preventive measure to include in your contract?

• Contractual penalty
• Interest on late payments —if the debtor fails to pay a monetary debt on time, the creditor may demand interest on late payments, provided the statutory conditions are met. If the amount has not been validly agreed upon, the statutory interest for late payment is based on the Czech National Bank’s repo rate for the first day of the calendar half-year in which the default occurred, increased by 8 percentage points.
• Deemed Delivery – Explicitly stipulate deemed delivery in the contract, i.e., specify when and how a document is considered delivered (for example, on the third day after being sent to an email address).
• Choice of court —by selecting a court in the location of your business or residence, you can save on travel costs and delays. However, the ability to contractually agree on the local jurisdiction of a court is not without limitations and also depends on the nature of the relationship; different rules apply, for example, in consumer relationships.
• Extension of the Statute of Limitations
• Contact Information —It is best to obtain as much information as possible or, if necessary, include a provision requiring the other party to keep it up to date.

Other preventive safeguards include confirming and securing the contract:

• They can serve as an incentive to pay the debt (late payment interest, contractual penalty),
• or they may guarantee payment if the debtor does not have the funds (e.g., a surety or lien).

Other tools that can help with prevention:

• Insolvency Registry —we use it to check the financial situation of the other party. Here, we can determine whether bankruptcy proceedings have already been initiated. If so, it is advisable not to enter into a contract with that entity.
• Central Register of Enforcement Proceedings —maintained by the Chamber of Bailiffs. It contains information on enforcement proceedings conducted by court-appointed bailiffs. There is a fee for accessing this information.
• SOLUS Registry —Although only the person who is the subject of the extract may submit a request, in cases of long-term cooperation, for example, you can ask your partner to provide an extract from this registry themselves.
• Real Estate Cadastre —While you cannot search by name here, you can proceed the other way around. If you know that a specific person owns a property, you can look up that property in the Real Estate Cadastre and verify whether it is encumbered by a lien or a bailiff’s seal.
• Commercial Register —this is useful if the counterparty is an association, a business entity, etc.; you can find additional information in the register, such as financial statements.

How to Collect an Unpaid Invoice, Step by Step

Internal Collection —It’s not always necessary to immediately turn to a law firm for every receivable, especially if similar types of receivables keep recurring. However, you can work with an attorney to establish a standard internal process and then use prepared templates. A reminder letter, for example, can serve as such a tool. It is recommended to mention contractual penalties, interest, or collection costs at this stage (depending on what is stipulated in your contract).
If you’re dealing with an unpaid invoice, proceed systematically:

1. check the due date,
2. whether the invoice was delivered to the correct person,
3. whether the debtor disputes the performance itself,
4. then send a written request for payment and keep proof of mailing.

In the reminder, include at least the invoice number, the amount due, the due date, and the new deadline by which you require payment. The reminder should also include an offer to settle amicably. You can appeal for voluntary payment, but at the same time warn of legal action and referral to a law firm.

We recommend sending the reminder directly to the other party’s data box.

Case file management —in electronic or physical form. Here, we collect everything related to the collection of the debt in question. The basis may be a contract, purchase order, etc., but anything can serve as evidence—chat messages, emails, witness statements, and the like. This also includes information regarding debt security, partial repayment of the debt, etc.

We knowfrom experience that a dispute often does not revolve around the invoice itself, but rather on whether the creditor can prove what the payment was intended to cover. Therefore, we recommend keeping not only the invoice but also the purchase order, handover report, email correspondence, or messages that clearly show that the debtor accepted the goods or services or acknowledged their existence.

Assignment (i.e., sale) of a receivable —at a certain stage, we may decide that it is not worth our while to collect the receivable (for example, if it appears to be uncollectible). This can be done even without the debtor’s consent. There are companies on the market that will purchase receivables, albeit for a fraction of their value. Sometimes, even a time-barred receivable can be enforced in this way. It is always advisable to consult an attorney regarding this procedure.

Legal Collection – To a certain extent, a lawyer will repeat the process of sending a demand letter. At this stage, however, you can engage a lawyer to represent you and send a demand letter in the form of a pre-litigation notice. This can be used to exert even greater pressure on the debtor.

Depending on the agreement with the client, an amicable solution may again be offered (waiver of interest, payment plan, waiver of costs or contractual penalties, etc.). Here, too, it is advisable to point out the mounting costs—in this case, those associated with the law firm’s services. This is usually a motivating factor for the opposing party.

It is necessary to grant an additional grace period for performance and to outline the next steps—i.e., legal proceedings (but never in the form of threats or blackmail).
Without a pre-litigation demand, we run the risk that the court, for example, will not award costs.

What should be included in a pre-litigation demand? A pre-litigation demand or notice should, above all, clearly specify:

• who is claiming the debt and from whom,
• the basis for the claim,
• the number and amount of the unpaid invoice,
• its due date,
• any interest or other charges,
• an extended payment deadline,
• the account number or other payment method,
• a warning that failure to pay may result in legal action.

The most common mistake we encounter in debt collection is waiting without a clearly defined next step. The debtor repeatedly promises to pay “next week,” while the creditor spends the following months merely reminding the debtor of the invoice—and in the meantime, the chances of collecting the debt diminish. Therefore, it is advisable to set a specific deadline for each demand and determine in advance what will follow if that deadline passes without payment.

Tip: If you’re searching for a “pre-lawsuit demand letter template,” don’t simply copy and paste a generic text without reviewing it. The content of the demand letter should correspond to the specific circumstances and amount of your claim.

Court proceedings —these may take the form of a trial, resulting in a judgment that determines whether a debt exists and in what amount. This part can be quite lengthy and demanding. However, it can essentially be skipped if a settlement is reached beforehand in the form of a notarial deed, in which the opposing party officially acknowledges its debt.
How do you file a lawsuit against a debtor? The complaint must:

• identify the parties,
• describe the relevant facts,
• state what you are seeking from the debtor,
• attach available evidence—typically a contract or purchase order, an invoice, proof of performance, correspondence with the debtor, and a pre-lawsuit demand.
• For monetary claims, the court may also issue a payment order if certain conditions are met.

Enforcement proceedings —follow-up proceedings in which a court-appointed enforcement officer is appointed to ultimately collect the debt.
When should you contact a bailiff regarding an unpaid invoice? As a general rule, you cannot contact a bailiff based solely on an unpaid invoice. First, you need an enforceable judgment—typically a final and enforceable court decision or, for example, a notarial deed with a declaration of enforceability. Only if the debtor fails to fulfill the obligation imposed by the judgment can you file a petition for enforcement.

Summary

If a customer fails to pay an invoice, start by verifying the due date and evidence supporting the claim, and then send the customer a written demand for payment. Depending on the circumstances, you may also claim late payment interest or other agreed-upon charges. If a standard reminder is ineffective, follow up with a pre-litigation demand; to ensure potential reimbursement of costs, it is advisable to send this at least 7 days before filing a lawsuit. The monetary claim can then be asserted in court, which may issue a payment order if the conditions are met. You generally turn to a court-appointed enforcement officer only after you have an enforceable judgment and the debtor still refuses to pay voluntarily. This entire problem can be largely prevented by drafting a solid contract, vetting your business partner, and consistently maintaining documentation related to the claim.