How to make claims for business debts and debt recovery
An unfortunate fact of business life is that companies you work with or provide services for do not always honour their invoices on time or at all. Making claims for business debts and debt recovery, therefore, forms part and parcel of many entrepreneurs’ and companies’ life.
The good news is that small claims proceedings are now relatively straightforward and swift. Other legal processes take longer, but Spanish legislation has greatly facilitated them over the last few years.
As part of the Costaluz Lawyers business packages, we provide advice on claiming for business debts and recovering monies due to your business. If you’d like a free consultation about how we can help you, get in touch here or fill in the form below.
We always advise our clients to do all they can to ensure their clients pay their dues. We recommend that you implement the following steps to avoid late or non-payment:
- Ensure your contract or agreement with the company includes the nature of your business, specifically stating the type of product or service you provide, exactly how much it costs and when payment should be made.
- Demand part payment (e.g. 50%) in advance, particularly if you’re working with a new business or one that you have not worked for before.
- State your payment terms (how much and when) clearly on your invoice. If necessary, remind your client of these in the email accompanying the invoice.
If your client fails to pay on time (or at all), your next step should be an informal reminder. Resend the invoice with an accompanying email or call the company and speak to the accounts department. Make payment terms very clear in all these communications.
If you still do not receive payment, your lawyer will send a burofax (registered letter) to the business. This document is a formal proof that you have requested payment from the company and have not received it.
Part of the Costaluz Lawyers service for claims for business debts includes writing reminders and registered letters. We also work with you and your debtor to try to reach a non-judicial solution.
Legal action for business debts and debt recovery in Spain
If the business is based in Spain and you still do not receive payment after the above, your next step is legal action. You have two options, depending on the amount and type of remuneration owed.
Small claims court for money debt
Known as a proceso monitorio in Spanish, this procedure is for business debts of less than €250,000 as follows:
- We submit a claim against the debtor on your behalf in the court, which issues a writ to the debtor giving them 20 days to pay or contest the claim.
- If the debtor contests the claim or fails to pay, a hearing will take place, oral for claims under €6,000 and ordinary for debts over €6,000.
- At the court case, the judge reviews the documentation and makes a ruling that is final and fully enforceable. The debtor must then pay the claim in full or the court will seize assets in lieu.
Small claims court for negotiable instruments
This is known as a juicio cambiario in Spanish and refers to a debt acknowledged by a cheque, bill of exchange or promissory note. The procedure is as follows:
- We submit a claim against the debtor on your behalf in the court, which issues a writ to the debtor giving them 10 days to pay the claim. The court also orders a temporary embargo (seizure) of the debtor’s assets equal to the amount of the claim plus legal interest and court costs.
- The debtor must pay the debt or contest it within 10 days. If neither action takes place, the court enforces the embargo of the assets.
Bankruptcy of the company
The company may be refusing to pay you because it cannot, and you may find that it declares bankruptcy (concurso de acreedores in Spanish). In this case, you must declare your business as one of the creditors and file your interest in the subsequent bankruptcy process.
This procedure tends to be lengthy and complex and payment of your debt is not always guaranteed because the debtor’s assets may not cover all outstanding costs.
Legal action for business debts and debt recovery in the EU
If the company that owes you money is based outside Spain but in the EU, you have two options to make a claim for the debt.
EU small claims court
This option is the most straightforward if both you and the debtor are based in the EU (but not Denmark) and the debt is for less than €5,000.
- Fill out Form A and file it with the court that has jurisdiction over the claim.
- The court replies and may request more information. Meanwhile, it must serve the debtor with a copy within 14 days.
- The debtor has 30 days to reply.
- The court must inform you of the reply within 14 days of receiving it. Meanwhile, the court has 30 days to make a judgement, request further details or summon the parties to an oral hearing.
You can find out more about the European Small Claims Procedure here.
EU order for payment
This procedure is designed to facilitate and speed up debt collection from businesses based in the EU. To qualify, you or the debtor must have your habitual domicile in an EU country (with the exception of Denmark) and the process is as follows:
- Your lawyer files the standard form for the European order of payment, stating the amount claimed and if necessary, legal interest and any associated costs.
- The court assesses the application and if it complies with all requirements, issues a European order of payment, usually within 30 days.
- The debtor may contest the claim. If the debtor chooses not to contest it, the request for payment is automatically approved and enforceable. If the debtor contests your claim, the procedure continues in court.
Timeline for claiming business debts in Spain
If a company owes you money, start proceedings to claim the debt as soon as possible. Although you can claim on business debts for up to 15 years afterwards, the sooner you act the better because you can claim for your debt before the company goes bankrupt or changes domicile or name.
Note that the clock starts ticking from the date you send your first invoice.
Take professional advice
As with all legal matters, debt recovery in Spain is best left to the experts. Take professional advice as soon as you have sent a reminder for payment. Our team of business lawyers have a long track record in successful business debts claims and will be only too pleased to help you with yours. Contact us now.