Sale of goods credit recovery, two ways for the unpaid: ad hoc company or lawyer

Luca Davini
Lawyer in Milan and Turin


In the case of sales of goods abroad, it is advisable to set up the necessary safeguards in the contract to manage the possible risk of non-payment, which is inherent in any business transaction. To this end, both order confirmations and general terms and conditions of sale to the extent that they contain seller protection clauses signed between the parties are very useful tools in standard foreign sales transactions.

However, many traders do not use any of these contractual protection tools and sell their products abroad by simply delivering the goods following receipt of a purchase order from the buyer.

Although very often payment is required in advance, especially from new customers, it is also true that there are many cases in which a relationship of trust is established between the seller and the customer over time, with a tendency to grant some credit and a consequent risk, in the event of a worsening of the customer’s financial situation, of non-payment on the agreed due date.

In the presence of these situations, it is usually considered appropriate to proceed with credit recovery through a credit recovery company or a lawyer (or sometimes “abandon” the credit, but only in cases where the conditions exist from the tax point of view). The choice between one or the other, to be effective and reasonably lead to a useful result, depends essentially on the weighing of two factors: professionalism and cost.

Credit recovery company

The credit recovery company can act only in the extrajudicial phase, that is, only in the preliminary phase of debt recovery prior to recourse to the court, judicial activity being reserved, by law, only to licensed lawyers duly registered to the Bar of lawyers in Italy or abroad.

The credit recovery company usually formulates a written request for payment to the foreign debtor applying interest and fees for handling the case. It then follows up this request with one or more reminder phone calls, the approach to the debtor of which, however, is not always known.

A wrong “style” of approach with the customer, however, could jeopardize any kind of future business relationship, which could instead be useful to maintain when the non-payment depends, for example, on a situation of temporary difficulty of the debtor.

It is often directly suggested to the debtor a payment in balance and excise or instalment, which is not said to be honoured in full if not supported by guarantees. If as a result of these activities no payment is obtained, the recovery company will suggest the use of a legal agreement, with a consequent cost to be incurred.

The lawyer

Unlike the credit recovery company , which operates in a standardized way, the lawyer, if experienced and competent in international commercial disputes, first analyses the commercial relationship, the applicable law and the possibly competent judge or arbitrator, what are the average times for the extrajudicial phase and the judicial phase in Italy and, if necessary, in the country of the debtor and if any disputes that the debtor could possibly oppose are legally founded or not, all in the light of the documents received.

In fact, it may be that an apparent credit recovery contains potential risks for counterclaims by the debtor of a much greater amount than the credit issued.

The lawyer should then advise the preliminary use of up-to-date commercial information on the situation of the counterparty and on its possible submission to bankruptcy proceedings (for example, agreement or bankruptcy), performing a real legal assessment about the solvency of the debtor.

Legal and economic analysis

It is essentially a complete legal and economic analysis, thanks to which the seller will then be able to make his own economic assessments on the basis of an informed decision.

Therefore, the fundamental difference that can determine the choice between the lawyer and the credit recovery company consists above all in the possibility of receiving from the lawyer expert in the international subject a legal analysis of the case and the related oral opinion from the beginning of the assignment.

In principle, the necessary documents to receive an opinion from the lawyer and proceed with the initiation of a letter of warning to fulfill are: contractual documents (purchase order of the buyer, possible order confirmation of the seller), proof of delivery of the goods (Cmr, accompanying invoice), sales invoice, correspondence between the parties (of particular relevance communications in which the buyer recognizes himself as a debtor and undertakes to pay).

From the analysis of the documentation, the lawyer in charge can determine whether or not the exclusive jurisdiction of a particular judge has been validly agreed, for example that of the judge of the seller’s or buyer’s seat or an arbitrator.

If the jurisdiction in question has not been validly agreed upon, it will be necessary to refer to the EU regulations on the subject (for customers located within the European Union) or to the rules of private international law (for customers located outside the EU) to identify the competent court, in case of failure of the out-of-court phase.

The recognition node

Finally, it should be taken into account that another important element of the initial legal opinion to the creditor is to indicate if the possible judicial decision (or arbitration) is recognizable in the country of the counterparty, in what times and under what conditions and costs of maximum.

For the EU there are no problems, given that a decision made in one member State will be recognized in the other member States without the need for any specific procedure; for the area outside the European Union, however, since bilateral conventions on the recognition of judgments between Italy and third countries are rare, in the vast majority of cases it will be necessary to act before the courts of the debtor’s seat, always subject to different choice in the contract.

Finally, it should be kept in mind that the choice between the national court and the foreign court is not obvious in favour of the Italian court, since the costs and benefits of the different options must be carefully evaluated beforehand, in addition to the possibility of obtaining an enforceable title in the country that has the most efficient judicial system, always following an assessment of the costs to be faced.

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Marcello

Dear Aurelia, the information you have provided are not sufficient for an answer which is subject to a professional engagement. In any case, we should study the provisions of the contract and identify governing law of the contract.If it does not provide anything on governing law then conflict law shall apply (in the most part of the countries likely the governing law will be the law of the country where the agent is domiciled). best regards Marcello Mantelli

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Aurelia

I signed a contract with a fashion agency but there were no termination clauses in the contract and decided to withdraw it before one week after signature so sent them an email but after 14 days they sent me an email and asserted that because i didnt withdraw in legal deadlines i have to perform the contract and pay whole money.Noboday told me about any deadlines and nothing was in the contract!! Why did they claim such a thing?

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