Business debt collection in case of non-payment is a common problem for entrepreneurs and foreign companies.
When a business client fails to pay invoices, this can have direct consequences for the liquidity, continuity,
and growth of your company. In this comprehensive article, you will read what you can legally do in case of business non-payment,
which steps are effective, and when litigation or attachment is worthwhile.
What is meant by business debt collection in case of non-payment?
Business debt collection in case of non-payment occurs when a company is confronted with another
company that does not (timely) pay a due invoice. Unlike consumer debt collection, fewer protective rules
apply to the debtor in business debt collection, which means that legal steps can be taken more quickly.
Business non-payment occurs, among other things, in cases of:
- delivery of goods or services without payment;
- structurally late payments;
- disputes about the performance of an agreement;
- financial problems of the debtor.
When is a business claim legally enforceable?
Not every outstanding invoice automatically leads to a successful collection of a business claim.
For enforceability, the following is required, among other things:
- a valid agreement exists;
- the agreed performance has been delivered;
- the invoice is correct and verifiable;
- the payment term has expired;
- no valid payment defense exists.
In practice, we see that unclear agreements or inadequate documentation can complicate effective business debt collection
in case of non-payment. A legal review in advance prevents unnecessary costs.
Business debt collection in case of non-payment: the legal step-by-step plan
Step 1: Check contract and general terms and conditions
A successful business debt collection in case of non-payment starts with the contract. Check whether agreements have been
made about payment terms, interest, collection costs, competent court, and applicable law.
Step 2: Formal notice of default
Although a statutory fourteen-day letter is not required for business debt collection, a written notice of default
is advisable. This formally puts the debtor in default and creates a claim for interest and costs.
Step 3: Extrajudicial debt collection
If payment remains outstanding, the extrajudicial collection phase follows. This phase is intended to enforce payment
without immediately litigating. This can be effective, provided it is carried out in a legally correct manner.
Step 4: Legal proceedings
When extrajudicial debt collection does not produce results, proceedings can be initiated. Depending on the
interest and urgency, a choice can be made between full proceedings or interim injunction proceedings.
Step 5: Attachment and execution
After a favorable judgment, attachment can be placed on bank accounts, inventory, or claims of the debtor.
In many cases, this makes business debt collection in case of non-payment successful after all.
When does litigation in business debt collection not make sense?
Litigation is not always the best solution. In practice, we see that business debt collection in case of non-payment
is less promising when:
- the debtor has no assets to recover from;
- the claim is (nearly) time-barred;
- proof of delivery is missing;
- the costs outweigh the interest.
A realistic feasibility analysis prevents you from investing money in proceedings without a real result.
Statute of limitations for business claims
Business claims are in principle subject to a five-year statute of limitations. However, this term can be interrupted, causing the
limitation period to start running again. In business debt collection in case of non-payment, timely action is therefore essential.
International business debt collection
Business non-payment is also common in international trade. Foreign suppliers who are confronted
with a Dutch debtor can often litigate in the Netherlands. Dutch law and Dutch courts
are regularly competent.
The European Union provides general information on this topic via
Your Europe – Debt recovery.
Common mistakes in business debt collection
- waiting too long before taking action;
- unclear or incomplete invoices;
- no proof of delivery or performance;
- litigating without prospects of recovery;
- not determining a legal strategy.
What can Arslan Advocaten do for you?
Arslan Advocaten assists entrepreneurs and foreign companies in business debt collection in case of non-payment.
We assess the legal feasibility, determine the right strategy, and guide you through extrajudicial
debt collection, proceedings, and attachment.
Read more about our services regarding debt collection and payment disputes.
Costs and litigation funding in business disputes
In business disputes, we work in principle not on a no cure no pay basis. Business proceedings
require a careful and strategic approach, with clear agreements about costs
and litigation made in advance.
In certain cases, however, it is possible to handle the case (effectively) on a no cure no pay basis.
We work together with an independent litigation funder who – after assessing the case –
may be willing to finance (part of) the attorney costs.
If litigation funding is granted, the attorney costs are borne by the litigation funder. For the client,
this means that litigation is possible without direct financial risk.
About the author
This article was written by Onur Arslan, attorney and founder of Arslan Advocaten. He specializes
in business disputes, including business debt collection, shareholder conflicts, and international
trade disputes.
Would you like to discuss whether your case is suitable for legal action or litigation funding?