How to recover debts, or what is debt collection?
According to the dictionary definition, debt collection is “the assertion of one’s rights to a thing or payment in the manner prescribed by law.” – These words are a good introduction to explain what debt collection is and how the process of debt collection works. Taking advantage of the opportunities provided by law, debt collection seeks to fairly recover debts. Many entrepreneurs associate debt collection with a grueling court process. However, this is not the only possibility.
Important!
We can start the collection process as early as the day after the due date – it is worth taking advantage of this right, as debt collection is greatest when collection is started in the first month after the due date. However, before moving to court, it is worth trying to resolve the matter amicably.
Types of debt collection – means and methods
Important!
An important issue is whether to undertake debt collection on your own or with the help of companies that deal with it professionally – you will find the differences between these approaches later in this article.
1.Amicable collection
Not every delay in repayment of debts has to end in weeks of court proceedings, which also involve considerable costs. Before deciding to go to litigation, it is worth trying soft debt collection methods.
There are several ways to get the debtor to settle the resulting debt. The first is to send a demand for payment. Usually such letters are sent by registered letter with acknowledgment of receipt or by email (but then the debtor can more easily deny receiving the message).
Call for payment – template
To properly prepare a summons for payment, key information should be included:
- creditor data;
- debtor data;
- title “Summons for Payment.”
- information about the circumstances under which the liability arose (e.g., by virtue of the VAT invoice number …);
- the formula “I call for payment of the amount… within… days”;
- bank account number to which the debtor should transfer the amount due;
- information about the need to take legal action if the summons is ignored;
- caller’s signature.
Soft debt collection techniques also include SMS calls and making telephone contact to pressure the debtor.
The last option available is the threat of entering a dishonest contractor in one (or more) of the debtors’ registers – this is not an unfounded threat, since under Polish law any creditor can provide the debtor’s data to such a register.
Important!
There are four institutions in Poland that collect data on debtors. These include: Credit Information Bureau (BIK), ERIF Economic Information Bureau, National Debt Register and InfoMonitor Economic Information Bureau.
Only when soft debt collection has not had the expected effect (the counterparty does not respond to emails, does not answer letters or otherwise avoids contact and, most importantly, repayment of the debt), we should try another way to recover the money owed to us
2.Judicial and enforcement debt collection
Going to court is a last resort, however, it is at the same time the most effective way out of a stalemate. In this scenario, we will take the appropriate steps to obtain a final judgment, under which the bailiff will collect the amount due from the debtor’s assets.
The main difference between the previously mentioned methods of soft debt collection and judicial-enforcement debt collection is the use of legal means, such as:
- Lawsuit – the creditor files a lawsuit with the court having jurisdiction over the seat or residence of the debtor. The lawsuit filed leads to a payment order;
- Enforcement cla use – only when we obtain a payment order can we initiate the initiation of clause proceedings, as a result of which we will receive an enforcement title with an enforcement clause;
- Enforcement title – correctly completed previous steps mean that enforcement proceedings can be initiated. Before doing so, however, we can still try to call on the debtor to voluntarily repay the debt. If this too fails, only the last point remains;
- Referral of the case to a bailiff – in order to carry out enforcement, you must submit a request to the bailiff to initiate enforcement, attaching to it the enforcement title obtained in court. The request should also include information about the benefit and how to collect the debt.
Further, the creditor is left to wait for the recovery of the debt. Unfortunately, the process of judicial-enforcement collection is not only costly, but also very time-consuming – but it undoubtedly remains the most effective means of collection.
Types of debt collection – by yourself or with help?
1. stand-alone debt collection
If you decide to carry out the collection yourself, you can follow the same path as described earlier. It is worth starting with soft methods so that, if these fail, the matter can be taken to court.
In such a situation, however, it is necessary to be meticulous, patient and persistent in the pursuit of the goal, since we do all the work (except for the court, of course) ourselves – including repeated contact with the debtor, often.
2. online self-collection
This is a form of debt collection that involves the use of an online debt collection platform. Of course, the purchase of access to one of the above. platforms generate a cost, but it is certainly much lower than using a law firm.
Online self-collection is a solution for those entrepreneurs who want to carry out debt collection themselves, but have not done so before or do not feel confident enough in legal issues. It is worth considering self-collection with the help of the program also when the debt you are trying to recover is relatively small – for example, a few hundred zlotys.
3. debt collection with the help of a law firm or debt collection company
In case the amount of debt we are going to recover is high, using a law firm or a professional debt collection company is a cost-effective solution – although the cost of such an output is certainly the highest, but we will save on time, which is often worth much more.
In addition to the fact that the creditor will spend much less time on debt collection carried out with the help of a law firm or debt collection company, he will also gain peace of mind – the vast majority of collection activities will be taken over by the hired company from the entrepreneur, and it will also take care of all legal issues. The creditor’s role is only to cooperate and possibly monitor the status of the case.
How much does effective debt collection cost?
Debt collection is unfortunately a piggy bank into which you have to throw some money to see satisfactory results. As long as you decide to collect on your own, and on top of that the case will end amicably, the costs should not be high: however, it should be remembered that even small, seemingly imperceptible amounts eventually add up to a larger sum.
The basic costs are those we will incur when trying to contact the debtor (phone calls, texts or emails are usually free, but it already costs money to send a registered letter). It may also be necessary to visit the counterparty at the premises of his company – travel costs will have to be added to our collection balance. There’s no fooling: if there is already a need to collect a debt, it rarely ends with one letter sent or one visit to the debtor’s company. Costs will therefore increase.
The situation changes drastically when we decide to take legal action. Already at the outset, it will be necessary to pay a court fee of 1.25% of the value of the debt (the amount cannot be less than PLN 30 or more than PLN 100,000) – provided that we are talking about injunction proceedings (in which we want to obtain an order for payment of the debt). Each time a letter is filed, an expert is appointed, or even your company is represented by an attorney, there are additional costs involved.
On top of all this, you will have to add the amount you will pay for the services of a law firm or collection company, if you decide to cooperate. This option is the most expensive, but – as long as the debt is relatively high – it can also prove to be the most cost-effective.
