There are many reasons why a customer does not pay the invoice at the due date:
- Business customers may be short on cash flow and be giving priority to other creditors, deliberately holding back invoices for payment,
- Consumers may be just badly organised, and may not have been aware of payment terms, or simply may not have the money to pay.
- sometimes, customers, being consumers or businesses, may be genuinely dissatisfied with the services or goods being provided.
In any case, a clear strategy should be implemented for getting customers to pay.
In this article we will focus on the most frequent B2B case, where trade customers delay or do not effect payment without any actual justification to do so. We will deal, in particular, with the case of Italian trade debtors.
B2B payments in Italy
In 2021, 38,5% of Italian companies paid timely at 30 days. At a world level, Italy, like the majority of the European Union countries, is at the top of the countries where B2B payments are more regular. In the European Union, however, Italy is at the bottom of the list leaded by Denmark (90% of companies paid at 30 days), after France and before Greece, Bulgaria, Portugal and Romania (where only 14% of companies paid at 30 days).
Since financing is a relevant competitive factor, Italian companies tend to prefer sellers offering terms allowing settlement of the account from 60 to 120 days following the invoice date, which is the most common practice in Italy.
Moreover, the overall small size of Italian companies and the cash flow problems due also to recent emergencies (Covid and Ukrainian war) are factors to be considered before exporting in Italy, since Italian companies tend to be slow on payments.
Time is of essence in debt recovery in Italy
Nevertheless, the strategy of debt recovery must be implemented rapidly and in a determined way.
Foreign creditors are sometimes undecided when Italian debtors delay payments or state that they won’t pay. In any case, the credit should be protected.
Very often the creditor which moves first and is more determined is the most successful. This is so especially in the case of Italian small companies having more cash flow difficulties and not enough liquidity to satisfy all the creditors at the same time.
So, after the deadline for payment is expired, it is important to put effectively pressure on the debtor.
You must refrain from waiting especially when the debtor is trying to gain time with unclear justifications. If the debtor knows you will wait, it will postpone your payment and give priority to other creditors.
Business is refusing to pay an invoice: legal solutions in Italy
The final request for payment
If the deadline for payment is expired, the first step should be to issue a final request for payment and give the debtor a short term (10/15 days) to pay what it owes.
In conformity with the EU Late payment Directive of 2011, now under revision the final request for payment includes:
- capital,
- interests and
- administrative fees for debt recovery
The EU Court of Justice clarified recently that administrative fees for debt recovery (40 euro) are due on each commercial transaction evidenced in an invoice and interests are calculated on the whole amount due, including VAT ( Judgment of the Court of 20 October 2022 – BFF Finance Iberia (Case C-585/20)
The actual minimum interest rate for delayed payments in commercial transactions in the EU is 8%. Here in you will find a calculator of interests for each EU member state.
How to send the final request for payment
The formal notice should be sent by registered letter with acknowledgment of receipt or by an electronic certified email. If the debtor is an Italian company or professional, you can verify its electronic certified address (so called PEC email address) either on the company’s website or in the INI-PEC public database to be consulted here
Other useful initiatives to protect the credit
Visiting, being in touch with Italian customers, checking the financial situation
Visiting or being in touch with the customer and checking its financial situation is also advisable, in order to understand the commercial risk and take appropriate steps. Italian Chambers of Commerce (which join the European business register network) collect the business and financial data of Italian enterprises. Business reports and financial statements are available in English and other languages, at a fixed fee.
Instalment payment plan and guarantees
Especially if there is a long lasting commercial relationship, the parties might consider to reach an agreement on an instalment payment plan. In addition, the release of guarantees for the delayed payment is agreed on in a limited number of cases, depending on the value of the contract and the nature of the relationship.
Suspension of deliveries
Subject to the contract or the applicable law, the creditor might suspend its performance or refuse to deliver until the debtor effects payment.
In general, this strategy may be successful against Italian debtors. Under Italian law, the creditor is entitled to suspend its performance until it receives its payment. This is so, unless the suspension is manifestly contrary to good faith.
However, before suspending performance, you should check the contract or the general conditions of contract. Actually not every contract nor law governing the transaction recognizes this right to the creditor. English law, for example, does not permit suspension of performance unless this faculty is expressly stipulated in the contract.
Legal remedies available in Italy
If your extra – judicial efforts are unsuccessful, you may need to:
- verify the financial situation of the Italian debtor in order to understand if it is still on the market or it went bankrupt;
- solicit payment through an Italian lawyer and/or repossessing the goods sold to the Italian debtor under a retention of title clause stipulated in the contract or in the general conditions of sale;
- seek a court order in Italy : the creditor might take legal action before Italian courts for the place where the Italian debtor is located, based on the contract. If the contract or the general conditions of sale are silent on this issue, as a general rule which is applicable in all commercial disputes between companies of different EU member states (art. 4 Reg. UE 1215/2018), the debtor may be sued in the courts of its domicile. Moreover, this choice may be appropriate in view of the subsequent enforcement phase in Italy, if debtor won’t pay even after being condemned by a court.
Judicial remedies in Italy may take the form of:
- Interim measures to secure the monetary claim;
- Court orders and judgments ordering the debtor to pay the debt and the legal fees;
- Enforcement measures such as seizure of assets or credits of the debtor in Italy.
In order to reduce judicial caseload, Italian legislator is promoting mediation as well as out – of-court negotiations between lawyers as instruments to reach enforceable agreements ending civil and commercial disputes in few months.
How can Lawyers help me if Customer won’t pay?
Debt collection is an important and fundamental activity especially when companies located in different countries are involved.
The devil is in the details, so, in order to achieve a positive result in the short term, it is important that a specialized lawyer assist early the creditor, when the debtor starts to delay or state unclear reasons to postpone payments.
An Italian lawyer and a law firm as LEX IBC, which is specialized in international contracts and debt collection, may support your company in the commercial negotiation and disputes with Italian debtors, helping also your company in collecting and drafting the documents (i.e. invoices, contracts, commercial emails and proofs of deliveries, formal legal notices) necessary to claim the credit and adopting the debt collection strategy which is appropriate in your specific case.
CONTACT US FOR ANY CLARIFICATION OR ASSISTANCE.