Debt collection abroad

International debt collection: what steps should you take?

Debt collection abroad is a growing necessity for companies and professionals operating in international markets. Differences between legal systems and procedures for the recognition of judgments abroad can make debt collection complex: let’s look at the main actions that can be taken against debtors based within the European Union and in cases where it is necessary to collect debts in non-EU countries.

How to find information about a foreign debtor

The first thing to do is to look for up-to-date information on the debtor company. Is it still active? Has it entered into insolvency proceedings? Have there been any significant changes in the company’s organization? The best way to obtain this information is to consult public registers, which, depending on the country, can provide access to a wealth of useful and up-to-date information.

How can this be done? A practical resource for starting your research is this online guide from Legalmondo, whose results can then be explored in greater depth and discussed with a legal expert in the country where the debtor is based.

This first step allows you to decide how to proceed, depending on the case: if the debtor is bankrupt, you can write off the debt and/or consider filing a claim; if the company is in financial difficulty, you can consider taking swift legal action or even resorting to urgent precautionary measures; if there are no signs of irregularities or financial difficulties, you can initiate recovery action using the most appropriate tools for the individual situation.

Statute of limitations on claims against a debtor abroad

Another element to be verified in advance is the statute of limitations on the credit, which depends on the law applicable to the contract. The period varies depending on the legislation of different countries, as do the methods of interrupting the limitation period: in some cases, a written request is sufficient, while in others it is necessary to initiate legal action.

The out-of-court phase of debt collection abroad

Once the debtor’s details have been obtained, the first step in the debt collection process is often to send a letter of formal notice from a law firm.

This phase is called extrajudicial because it (generally) involves a lawyer, but it is preliminary to the initiation of litigation in court.

Again, since we are dealing with foreign countries, it is essential to note that this step is optional in some countries, while in others, sending a formal request is mandatory, with various consequences of varying importance if this step is not completed.

The purpose of this letter, although not mandatory under the laws of many countries, is to increase pressure on the debtor, moving from reminders sent directly by the creditor, which have had no effect, to a request that announces a consequence (legal action) in the event of non-payment within a short period of time, sent by the person who has the power to initiate legal action and who has been appointed for this purpose.

In a landscape that varies significantly from country to country, if you want to achieve the desired result, or at least do your best to achieve it, this step must be handled with great care. It is not the same to contact one of the many agencies that deal with debt collection abroad or choose to hire a specialized lawyer in the country where the debtor is based.

Why hire a lawyer in the country where the debtor is based?

International debt collection requires specialist knowledge, as it is necessary to be familiar with the regulations and case law of different countries to identify the quickest and most effective procedure.

Depending on the circumstances, an expert lawyer will advise the entrepreneur whether to take action in the creditor’s country or where the debtor is based, and which legal proceedings are the fastest, most cost-effective, and most efficient.

The choice between a lawyer based in the creditor’s country and a foreign law firm when it comes to recovering a debt abroad is often motivated by two factors:

• The creditor may prefer a local lawyer for linguistic and personal familiarity, or to avoid the difficulties associated with selecting a lawyer in a foreign country.
• The costs of foreign law firms are often much higher than those of domestic firms.

However, these considerations must be balanced against the actual effectiveness of the action taken: a letter of formal notice sent by a law firm to a foreign debtor often has a limited impact. The further away the debtor is, the less effective the result. Consider, for example, a payment demand sent by an Italian lawyer to a Chinese company: in most cases, the debtor will not perceive it as a real threat of legal action in the event of non-payment.

On the contrary, the same letter sent by a lawyer in the debtor’s country, in the language of that country (in the previous example, in Chinese), will be perceived as more serious, closer, and immediately linked to possible legal action in the event of non-payment. The reasoning is as follows: if my Italian creditor has turned to a law firm in Shanghai, they probably intend to go all the way and sue me if I do not pay the debt within the deadline set out in the letter.

For this reason, in most cases, involving a lawyer in the country where the debtor is based is the most effective solution for obtaining payment out of court or—if the warning letter is unsuccessful—for initiating recovery action with a greater chance of success.

How to recover an unpaid debt abroad through legal action

Legal action within the European Union

The EU is a single legal area in which judicial decisions are automatically recognized. This means that an Italian judgment or injunction can be directly enforced in another member state without requiring further approval or recognition procedures.

The main instruments for international debt collection in the EU are:

• National judgment: once enforceable, they can be immediately recognized and enforced in another EU country.
• European order for payment: a uniform and simplified procedure, valid in all Member States, aimed at the recovery of uncontested cross-border debts.
• European Account Preservation Order (EAPO): introduced by EU Regulation No. 655/2014, it allows the debtor’s funds in current accounts opened in any Member State to be frozen without prior notice.
• Legal action in the debtor’s country: through ordinary or simplified proceedings, if direct action in the debtor’s country is quicker and more effective.

Legal action against a debtor based in a non-EU country

Outside the European Union, there is no uniform system for the circulation of judgments. In this case, the recognition of judicial decisions abroad depends on:

• Bilateral treaties signed by the creditor and the debtor states, which provide for the mutual recognition of civil and commercial judgments.
• Local legislation of the country in which action is to be taken: in the absence of agreements, it will be necessary to resort to an exequatur or homologation procedure in accordance with national laws.

Unlike within the EU, therefore, the recognition of a judgment in a foreign country can be challenging and expensive, or in some cases, virtually impossible. It is therefore essential to make an informed choice in the contract regarding the method of dispute resolution and which court (or arbitrator) will have jurisdiction to decide.

International contract: the choice of jurisdiction clause.

When can you go to a domestic court, and when is it necessary (or preferable) to go to a foreign court? To answer this question, you need to identify which court has jurisdiction.  This is easy if the contract contains a clause attributing jurisdiction to a certain court but, if there is no written contract or the contract does not contain a jurisdiction clause, it is necessary to refer to the rules governing jurisdiction in international commercial relations.

It is certainly advisable to include a clause on the competent court  and this should be done with the help of a specialist lawyer, avoiding the use of the same clause for all sales contracts abroad and instead assessing, on a case-by-case basis, which court is best suited to resolve disputes arising from the specific contract.

In some instances, it may also be appropriate to choose arbitration as the method of dispute resolution.

When to include an arbitration clause in an international contract

Arbitration is an alternative method of dispute resolution whereby the parties, instead of going to the ordinary courts, entrust the decision of the dispute to one or more arbitrators, chosen by mutual agreement or appointed according to the rules of an arbitration institution. The final decision, known as the arbitral award, is binding and can be recognized and enforced in the same way as a court judgment.

Compared to ordinary jurisdiction, arbitration is characterized by:

• Greater flexibility: the parties can choose the procedural rules, the venue, and the language of the proceedings.
• Specialization: arbitrators are often experts in the subject matter of the dispute (e.g., international commercial law, procurement, contracts).
• Confidentiality: Unlike ordinary trials, arbitration proceedings are confidential.
• Speed: proceedings are generally shorter than in state courts, although the costs may be higher.

In summary, while ordinary jurisdiction is public, rigid, and guaranteed by the state, arbitration offers a more flexible and specialized tool, which is particularly appreciated in international commercial relations.

One of the advantages of arbitration over ordinary litigation is the possibility of obtaining an arbitral award which, thanks to the 1958 New York Convention, can be automatically recognized and enforced in over 160 countries. This makes international arbitration particularly effective for companies operating abroad, guaranteeing the possibility of enforcing the decision even in countries where it would be complicated, if not impossible, to obtain recognition of a foreign judgment.

The choice between state jurisdiction and arbitration, therefore, can have significant consequences on the actual possibility of recovering a debt abroad; for this reason, it is a choice that must be made on a case-by-case basis, considering various factors.

Here is a table summarizing some of the elements to consider:

Arbitration vs. Ordinary Jurisdiction

Aspect	Arbitration	Ordinary jurisdiction
Who decides	One or more arbitrators, chosen by the parties or by an arbitration institution	State judges appointed in accordance with national law
Average duration	Faster (generally 12-24 months)	Varies by country, often longer
Cost	Usually higher (arbitrators’ fees + procedural costs)	Generally lower, except in special cases (e.g., US).
Flexibility	Maximum: the parties choose the venue, language, and procedural rules	Limited: rules set by national procedural law
Confidentiality	Confidential proceedings	Public proceedings
International effectiveness	Arbitration awards recognized in over 160 countries thanks to the New York Convention (1958)	Rulings recognized within the EU (Brussels I bis Regulation) or through bilateral treaties
Possibility of appeal	Generally excluded or very limited	Extensive: judgments can be appealed at various levels of jurisdiction

 

Who are the lawyers at Ursusnetwork?

Our lawyers focus on helping companies that conduct business internationally and have extensive experience in credit protection and recovery. Currently, we operate in 62 countries and manage an online platform that ensures maximum security, confidentiality, and speed—both in and out of court—while lowering costs and increasing the effectiveness of our services.