Cong Thanh Bui (James)
Managing Partner
Lan Nguyen (Megan)
Head of Legal Business Consulting
The concept of “bad debts” can be understood as receivable debts that are past the due date for payment, despite the enterprise’s reconciliation, confirmation, prompting for payment or receivable debts that are not yet due for payment. Additionally, bad debts include receivable debts owed by economic organizations that have fallen into bankruptcy, undergone dissolution procedures, or are missing or absconding, ect.
A successful bad debt collection strategy requires enterprises to pay close attention to the statute of limitations for initiating lawsuits and the interest applied during late payments. Additionally, initiating lawsuits at the Court is crucial to protect legitimate rights and interests.
1. Statute of limitations
According to the provisions of the current Law on Commercial, the statute of limitations for initiating lawsuits to request the Court to settle disputes related to bad debts arising from the contract is 02 years from the date the legitimate rights and interests are violated.
If the 02-year period expires and the enterprise does not initiate a lawsuit at a competent court, it will lose the right to sue.
In practice, when it comes time to pay, the debtor often cites reasons such as third parties have not paid, are in the approval process to pay, their production and business are not effective, etc. to delay the performance of obligations under the Contract.
On the other hand, businesses with the mentality of waiting for the debtor to pay are often hesitant to remind the debtor, thereby not paying attention to the statute of limitations. Therefore, the expiration of the statute of limitations means businesses lose the right to ask the Court to settle.
One can establish through a debt reconciliation record between the two parties, a debt agreement or debt certificate. Additionally, any document demonstrating the debtor’s partial fulfillment of obligations, such as a VAT invoice for debt payment or transfer information for debt payments, can serve this purpose.
2. Interest
When the debtor is late in payment, the enterprise has the right to request the debtor to pay interest. This interest covers the amount payable from the time the debt was due until the actual payment date.
If the contract includes an agreed-upon interest rate for late payment, the parties will apply the interest rate.
If the agreement on the interest rate does not state in the contract, the enterprise can request payment of interest on the total debt when the debtor is late in payment. The enterprise will calculate the interest on the average delinquent interest rate on the market at the time of payment and apply it to the late payment period.
When determining the late payment interest rate for the amount of late payment, the Court shall base on the average overdue debt interest rate on the market of at least 03 (three) commercial banks (Joint Stock Commercial Bank for Foreign Trade of Vietnam, Joint Stock Commercial Bank for Industry and Trade of Vietnam, Bank for Agriculture and Rural Development of Vietnam, etc.) that have a head office, branch or transaction office in the province or centrally-run city where the Court is settling or adjudicating. Subsequently, this rate determines based at the time of payment (the time of first instance trial) to decide the late payment interest rate, unless otherwise agreed by the parties or otherwise provided for by law.
3. Lawsuit Procedure
Enterprises need to initiate lawsuits at competent agencies to avoid losing the right to sue. Depending on the nature of the case, the enterprise may initiate a lawsuit at the District People’s Court or the Provincial People’s Court where the debtor has its head office (if it is an organization) or where the debtor resides or works (if it is an individual).
When initiating a lawsuit at a competent court, enterprises need to prepare the following documents:
- Petition;
- Documents proving the legal status of the enterprise such as Enterprise Registration Certificate, Investment Certificate; etc.
- Documents related to the dispute: contracts, invoices, warehouse receipts, delivery slips, minutes confirming debts between the two parties, dispatches or notices of debt reminder, etc.
4. The Importance of Documentation in Debt Recovery
Please note that it is necessary to notarize, legally authenticate, or obtain confirmation from competent agencies and organizations for all the aforementioned documents. The contract is one of the important documents to prove the origin of the debt. However, if the business contract is lost, the enterprise can still recover the debt by using documents proving contract performance, such as invoices, freight forwarding minutes, working minutes, or debt reconciliation records, ect. Therefore, enterprises can still solve and collect the said difficult debt even without the original signed contract.
Is bad debt threatening your business? Let PLF Law Firm help you find the optimal solution. PLF provides effective debt recovery strategies, protects your profits, and ensures your business’s stability. Contact us today for professional legal advice and support.
The article is based on laws applicable at the time noted as above and may no longer be appropriate at the time the reader approaches this article as the applicable laws and the specific cases that the reader may wish to apply may have changed. Therefore, the article is for referencing only.
