What should you do if a contractor fails to pay an invoice?

1. Is going to a bailiff the first step?

No. As a rule, enforcement by a bailiff is the final, rather than the first, stage of debt recovery.

If a contractor has failed to make payment by the due date, the first step should generally be to send a demand for payment specifying at least the amount outstanding, the basis of the claim and the deadline by which payment is expected.

Only if amicable measures prove unsuccessful should court proceedings be considered, followed, where necessary, by enforcement proceedings conducted by a bailiff.

2. What are the subsequent stages of debt recovery?

In a typical case, debt recovery will involve several stages.

The first stage is amicable debt recovery. The creditor requests that the contractor voluntarily settle the outstanding amount.

The second stage is court proceedings. If the debtor still fails to pay despite receiving a demand for payment, the creditor may bring an action for payment before the court. A court fee is payable when filing the claim. Depending on the circumstances, the proceedings may result, among other things, in the issuance of an order for payment or a judgment.

Only at the next stage may enforcement proceedings be initiated, i.e. the case may be referred to a bailiff. In other words, merely holding an unpaid invoice does not mean that the creditor can simply hand it over to a bailiff and request compulsory recovery of the amount due.

3. How long does debt recovery take and is it expensive?

This depends primarily on the stage at which the contractor decides to pay. If a demand for payment is sufficient, the costs will be relatively low and generally limited to correspondence expenses.

If court proceedings become necessary, a court fee will need to be paid. Its amount depends on the value of the claim.

If the debtor fails to pay even after the court proceedings have concluded, it may be necessary to refer the matter to a bailiff, which also involves additional costs.

Of course, a professional legal representative may be engaged at any stage, which will also generate additional expenses.

Importantly, if the claimant succeeds in court proceedings, the defendant reimburses the claimant for the equivalent of the court fee and, where a professional legal representative has been engaged, the statutory costs of legal representation. As a rule, the costs incurred in enforcement proceedings are also borne by the debtor.

4. Can a contractual penalty for failure to pay be included in an agreement?

A contractual penalty is not the appropriate instrument for securing monetary claims.

In the event of late payment of a monetary obligation, the creditor is entitled to interest and, where the debt arises from a commercial transaction, may additionally be entitled to compensation for debt recovery costs.

Therefore, instead of including a “penalty for an unpaid invoice” in an agreement, it is advisable to establish a comprehensive system for securing payments. A well-drafted agreement can significantly strengthen the creditor’s position even before any payment problems arise.