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The Saga of a Bad Debtor

TL;DR ✨

You know how it goes. You issue an invoice and someone does not pay. What can you do about it? The author describes his journey from despair, ignorance, suffering, and a great deal of swearing to what will hopefully be the successful recovery of what was taken from him.

Do not be naive. One in every ten to twenty clients will fail to pay, and the author considers even that an optimistic estimate. Unfortunately, the number of non-paying clients grows as a business becomes more successful.

Date written: November 26, 2015

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You know how it goes. You issue an invoice and someone does not pay. What can you do about it? The author describes his journey from despair, ignorance, suffering, and a great deal of swearing to what will hopefully be the successful recovery of what was taken from him.

0. Preventing non-payment

First of all, forget the motto "the customer is always right." Before accepting a new customer, find out about their payment record. Check public registers and test them somehow, for example by asking for payment in advance. If you work in logistics or another fiercely competitive field where this is not practical, and you do not have a framework agreement in place, the author's advice is simple: forget such clients and go into another line of business. Going hungry and chasing payments is not worth it.

Do not be naive. One in every ten to twenty clients will fail to pay, and the author considers even that an optimistic estimate. Unfortunately, the number of non-paying clients grows as a business becomes more successful.

1. How a client becomes a debtor

For someone to become a debtor, you need to have a few pieces of information about them on record. Usually these are:

  • A contract/binding order, ideally signed
  • An unpaid invoice

To call someone a debtor, you must be able to prove it. There are several ways to do so:

  • A signed contract/order, or some other signed document proving that the person really communicated with the author and requested something
  • Explicit proof that the debtor knew there would be consequences for failing to pay, such as acceptance of the terms and conditions, a clause in the contract, information on the invoice, or the debtor's clear consent to the penalty
  • An unpaid invoice is useful, but information about penalties is even better. It also gives the invoice a little more weight :-)

2. How should you deal with a debtor?

The polite first step is to contact them about the outstanding debt by email and, if appropriate, by registered letter. You can also try a recorded phone call, provided you announce at the start that the call is being recorded.

It is sensible to notify them and wait for a while. They may simply have forgotten to pay. That happens, and there is no need to become an executioner immediately. If they do not respond, they are probably ignoring you, so a reminder is appropriate. The debtor must have been informed of these procedures in advance through the terms and conditions or contract. If you are still successfully ignored, do not despair.

You can recover the debt through legal proceedings. To make everything clear, the debtor must also be informed by a demand for payment, preferably sent by old-fashioned registered mail to the place where they live or used to live. So far, courts are not particularly concerned with whether the letter was collected; you have fulfilled your statutory obligation. A sample of the author's demand-letter template can be downloaded here: sablonaNaBlog.

So-called services

If you are still being ignored, the debt can be handed over to a so-called collection company such as LogiCall. These companies try calling a few times or send a demand to the debtor on your behalf, adding a hefty penalty. If someone gets frightened and pays them, they deduct an unpleasant amount from your claim. If they recover nothing, you pay nothing, but you also receive nothing. The author's experience with them was poor. They achieved almost nothing, recovering only two claims out of several dozen, and charged so much that the author gave them no more cases. That seems rather brazen for sending only a few reminders and making two phone calls. The author does not consider it efficient.

Other options

For example, Czech Post operates DINO, but this is relevant only if you have at least 30 debtors per month.

3. Taking matters into your own hands

Another option is to take matters into your own hands and seek a payment order. In telecommunications, claims are submitted to the Czech Telecommunication Office (CTU) for assessment. Select the correct form at http://www.ctu.cz/ctu-online/formulare/prehled-formularu.html, include all relevant information, and remember that more evidence is better. For example:

  • A signed contract, or another document proving that the debtor really communicated with the author
  • Unpaid claims
  • The tracking number of the letter used to inform the debtor about the debt/reminders
  • Email correspondence and reminders sent to the email address specified in the contract, preferably signed with S/MIME
  • Evidence establishing the basis of the debt, such as CDR records or photographs documenting work performed. The more relevant material from your field you provide, the greater the likelihood that the claim will be upheld.
  • Proof that you sent a demand for payment warning that the matter would be referred to court. The best evidence is the tracking ID of the registered letter. If you do not have the ID, you are out of luck.

If the CTU rules in your favor, a period begins during which the debtor may file an objection. If no objection is filed, the decision becomes final and the matter can proceed to the next level: handing it to a lawyer.

The author intended to add further developments in an update.

Even then, the case is still not won. If the debtor is already subject to enforcement proceedings, you are out of luck and all the work was pointless. The same applies if the debtor has no assets or has declared insolvency. In that case, about the only option left may be to find Volodya from Ukraine to explain that debts should be paid, and not only at Christmas.

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Update dated November 11, 2017

The author submitted the claims to the CTU for assessment. The office had an objection to each one. Most often it raised issues with the terms and conditions; sometimes it refused to accept reminders, and occasionally it requested invoices the author had already sent. After some correspondence, the author's requests were accepted and a file was created that both he and the other party could inspect at the CTU. The author assumes that the CTU also asked the other party to comment on the debt. If no objection or evidence disproving the debt was submitted, a payment order was issued. The author passed the payment order to a law firm, provided a power of attorney, and no longer deals with the matter, nor does he want to. Nothing happened for a week; after that, debtors began contacting the helpline or sending emails. The law firm did not go easy on them: it sent demands for payment and, when debtors ignored them, referred the cases to an enforcement officer. The author is now waiting to see how many claims will be recovered this way.

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