Unpaid invoices are a major challenge facing companies. Every nonpayment risk compromises a business’s sustainability. How does a company recover an outstanding balance? What debt collection techniques exist? How are unpaid invoices collected amicably, without going to court? In this article, we define debt collection, explain available remedies, and outline the conditions for using them.

What’s in this article?

• What is debt collection?
  
• At what point does a company initiate debt collection?
  
• Conditions required for debt recovery
  
• What are the various types of collection procedures?
  
• What amicable collection procedures exist?
  
• What legal procedures exist?
  
• Recovering small debts
  
• Recovering cross-border debts
  
• Deadline for requesting payment of a debt
  

What is debt collection?

Debt collection encompasses all the legal proceedings available to a company to recover outstanding settlements. These steps begin when a creditor does not receive payment for an invoice by the standard deadline. There are numerous remedies offered to collect payment of the debt, from friendly reminder letters to lawful injunctions to remit.

At what point does a company initiate debt collection?

A company needs to initiate debt collection procedures as soon as a payment is late to avoid an accumulation of unpaid invoices, which can lead to cash management difficulties. The older a claim is, the more difficult it is to collect. It’s important to respond quickly to correct the situation and maintain a company’s good financial health.

Conditions required for debt recovery

To begin a debt collection process, the outstanding balance has to meet certain conditions:

• The debt’s existence must be indisputable and provable.
  
• It must be liquid, and the amount must be clearly noted or determinable.
  
• It must be owed (i.e., due) and the deadline for collection must not have expired.
  

What are the various types of collection procedures?

Two types of collection procedures are possible: amicable or contentious (legal). The kind used will depend on the debt amount, the customer’s importance, and the frequency of business interactions with the customer. A company can request advice from a court-appointed officer (commissaire de justice)—a legal professional specialized in the recovery of unsettled balances.

What amicable collection procedures exist?

Amicable procedures, such as dunning and formal notices, use conversation to obtain payment of the debt. These methods’ main goal is to lead the debtor to settle their outstanding balance voluntarily, without court intervention.

If the business assumes that the unpaid amount is due to a customer oversight or accounting error, amicable collection is preferable. These noncontentious approaches allow the company to stabilize cash flow while preserving client relationships.

Dunning

Dunning serves as a friendly reminder that an invoice remains unpaid. A company can contact the client by phone, email, or mail to seek settlement. Communications need to remain courteous, unthreatening, and clear, and have to include a prompt request seeking remittance. We recommend you contact your client by phone before sending reminder letters.

Stripe Billing is an advanced invoicing tool that lets you automate payment reminders without writing a single line of code. Stripe’s customized workflows help you simplify transaction processes, customer communication, and enhance collection efforts.

Formal notices

If reminders fail, the company can proceed with a formal notice. This is a more official request, which can be sent by registered letter with acknowledgement of receipt.

A formal notice typically lists the creditor’s name and contact details, identifies the origin and sum of the debt, specifies the total due, and outlines the accepted payment methods. It also notes the judicial avenues the claimant will initiate if it remains unsettled.

A company can attempt to recover the amounts payable itself or assign this task to a third party (e.g., a collection agency or a court-appointed officer). By commencing an amicable procedure, the company hopes to receive payment promptly and avoid legal fees.

What legal procedures exist?

If amicable collections are unsuccessful, a company is able to seek a judicial review to compel settlement of the debt. The three legal procedures available are an injunction to pay, a provisional payment order (référé-provision), and a summons for payment (assignation en paiement).

Injunction to pay

An injunction to pay is a fast, low-cost, nonadversarial process that allows the creditor to obtain a binding mandate requiring the debtor to settle. The claimant files an application with the court clerk, after which a judge reviews the submission and issues a decision based solely on the information provided, without hearing from the liable party.

Provisional payment order

A provisional payment order is an urgent procedure that requires two parties to appear in court. If the judicial body grants the order, it directs the debtor to remit a provisional sum as an advance on the amount due.

Summons for payment

As a last resort, a company will be able to launch a more lengthy, complex, and costly approach to enforce remittance of an unpaid invoice. They can use a summons for payment, which is suitable in high-value, contested debts.

A summons seeking payment results in a traditional legal proceeding. Both parties present their arguments before the court, which reviews the evidence. If the balance due is acknowledged, the judge will produce an enforcement order requiring the liable party to settle.

Recovering small debts

For debts under €5,000, a company can use a simplified collections procedure that operates with no judicial involvement. A court-appointed officer brings both parties together to agree on the total owed and the settlement terms, then issues an enforcement order once they reach an agreement.

Recovering cross-border debts

When cross-border disputes are involved, a company can request a European Order for Payment (EOP), provided the debt is uncontested, and the debtor resides in the European Union (except Denmark). They do not appear before the judicial body; the process unravels entirely through written forms. To file a no-cost EOP, the company fills out Form A and submits it to the court.

The company is also able to initiate a European small claims payment procedure covering amounts up to €5,000, provided the debtor does not reside in Denmark. The company submits the request to the correct jurisdiction by post or electronically.

Deadline for requesting payment of a debt

The timeline to take action ranges from one to five years, depending on the type of debtor and the transaction. Usually, the creditor has two years to request payment if they are a private individual and five years if they are a business or company. In addition, specific deadlines apply to certain situations:

• One year for telephony and internet services
  
• Three years for rental and leasing debts
  
• Five years for costs related to joint property ownership