Self-defence for suppliers

When even repeated sending of reminders has no effect

When even repeated sending of reminders has no effect, further steps need to be taken. This should normally not be done without taking professional legal advice beforehand. Every manager should bear in mind the following basic rules here.

Summary proceedings for an order to pay debts

The fastest and least expensive way to get your money from a slow-paying customer is to apply for summary proceedings for a payment order from the local district court (in Germany, this is known as a Mahnbescheid). With this, it only takes about two months until the supplier can obtain an executory title to send in the bailiff. If you sue for payment, on the other hand, the minimum time as a rule is six months. You don’t even need a lawyer to fill in and send the payment order (Mahnbescheid). If the debtor objects, however, the procedure goes to court to be dealt with there.

Suing for a judgement title

If your customer already raises objections against the invoice beforehand, because, for instance, he feels (wrongly) that he has not got what he is supposed to be paying for, you should consider suing for a judgement title from the court.

Execution of a judgement title

Even if, on the face of it, there is no chance of getting anything back from the customer, it may be worth getting a judgement title from the court. For instance, you can obtain a garnishee order, which prevents money being paid by the debtor to third parties. Any tax refunds to the debtor in future can be covered under certain circumstances by an attachment order. The prerequisite for this is however always that you have an effective judgement title and the corresponding order from the competent court of execution.

When your customer is insolvent

Time is of the essence when a customer is insolvent. The first priority is to secure your receivables without any delay. It may be necessary here to act in different ways depending on the situation. You should get professional legal advice on the details of the case. We would just like to give a few interesting pointers on how to proceed from a business point of view.

Use the opportunities – minimize your risks
If proceedings for insolvency have not yet been opened, the creditor – assuming he has an effective judgement title – should try to secure his receivables by means of an attachment order. The execution of judgement titles is suspended on the filing for opening of insolvency proceedings, but continues if the petition is rejected. Rejection by the court for lack of assets does not necessarily mean that there are no assets left.

Depending on the distribution of the insolvent estate, it may even be a better starting point if insolvency proceedings are not opened. It is therefore a good idea to check the legal rules for withdrawing an insolvency petition you have already filed, as well as the financial risk involved in filing an insolvency petition.

It is a great temptation for the debtor to quietly sell off the unpaid goods before insolvency is declared. When you have delivered goods covered by retention of title you should inform the provisional insolvency administrator of this fact. He must decide, on request from you, whether to perform the contract (pay you) or to return the goods.

You should take note here that the insolvency administrator has the right to defer this choice, in the case of goods delivered under simple retention of title, until after the first creditors’ meeting held to report on the insolvency. He does not need to decide until then unless this would lead to a substantial reduction in the value of the assets concerned and the creditor points this fact out to the administrator. If the supplier wishes to have the goods delivered under retention of title returned to him, he has to at least be able to present a legally effective retention of title agreement as evidence.

Dunning by the professionals is more cost-effective

More and more companies today are choosing to use the professionals in their dunning procedures. They pass their debts on to external debt collection agencies for collection. When the experts here have debts which are no older than three or four months, they reckon on an 80% chance of getting the money. Nevertheless, many companies still send reminders in an unsystematic way and do not pass on their debts for collection until it is too late. And this despite the fact that using external help is in many cases more cost-effective than action by an in-company credit management department.

Many of the over 600 debt collection companies have specialized in certain segments of the business. The Collection Division of Euler Hermes Collections GmbH is one of the companies with a broad universal palette of services. Reputable collection companies inform you on a regular basis about the progress of their activities and transfer any monies they collect quickly to their clients (the creditors). Besides a commission for successful collection, collection companies also charge a handling fee.