Securing Claims: How to Secure Your Claim Before a Dispute Arises

When a customer stops making payments, most companies immediately think about demand letters, litigation, or enforcement proceedings. However, securing a claim and achieving successful debt recovery often depend on decisions made much earlier—when concluding the contract, selecting appropriate security instruments, and properly documenting the business relationship. In this article, we outline several steps that can significantly improve the likelihood of recovering your claim quickly and with lower costs.

Securing Claims: What to Consider When Establishing a Business Relationship

When a business relationship develops as planned, few companies think about what will happen if the other party eventually stops paying. By that stage, negotiations have been completed, the goods have been delivered or the services performed, and the opportunity to strengthen your legal position is considerably more limited.

For this reason, well-managed companies do not leave debt recovery issues until the end of a business relationship. Instead, they address them from the very beginning through proper claim protection. If you start thinking about debt recovery only after a customer defaults, many opportunities to reduce the risk have already been lost.

The way a contract is drafted, how the delivery of goods or performance of services is documented, whether appropriate security instruments have been agreed upon, and how business communications are maintained often have a far greater impact on successful debt recovery than the enforcement proceedings themselves.

In other words, proper preparation is often the best protection against future disputes.

A Well-Drafted Contract Is More Than a Formality

Business partners without in-house legal departments often rely on contract templates that have not been updated for years or download generic templates from the internet without adapting them to the specific transaction.

It is not uncommon for one party to send its standard contract, for the other party to review it only superficially, and for both sides to assume that any future issues can be resolved “along the way.” While the business relationship runs smoothly, this approach rarely causes problems. However, once a dispute arises, the contractual provisions that once seemed insignificant often become decisive.

Among other things, the contract should clearly regulate:

• the subject matter of the contract;
• performance deadlines;
• payment terms and deadlines;
• consequences of late payment;
• contractual penalties, where appropriate; and
• the jurisdiction of the competent court or arbitration, where such an arrangement is appropriate.

The rights and obligations of the contracting parties are governed, among other legislation, by the Law on Obligations.

It is not enough for a contract merely to contain these provisions as a matter of form. They should describe and regulate the relationship between the parties in a detailed and precise manner. Clearly defined rights and obligations cannot guarantee that a dispute will never arise, but they significantly reduce the scope for differing interpretations.

For example, the contract should clearly specify when goods are deemed delivered, who signs the delivery records, when the payment obligation becomes due, and what constitutes proper performance of the agreed services. The more precisely these issues are regulated, the less room there is for the other party to dispute its obligations at a later stage.

Security Instruments

When discussing debt recovery, attention is often focused exclusively on the main contract. In many cases, however, security instruments make the crucial difference between successful and uncertain recovery.

Depending on the type of transaction and its value, various security instruments may be used, including bills of exchange, bank guarantees, pledges, mortgages, or other legally permitted forms of security. Naturally, the most appropriate instrument depends on the specific business transaction and the associated risk assessment. There is no universally optimal solution.

Document Every Step of the Transaction

In previous articles, we have pointed out that an invoice alone is not always sufficient when a dispute arises between the parties. For that reason, companies should retain complete documentation relating to the business relationship.

This may include:

• contracts and amendments;
• purchase orders;
• delivery notes;
• handover records;
• email correspondence;
• complaints and responses to complaints; and
• proof of payment.

When there is a clear documentary record of what was agreed and how the transaction was performed, it is much easier to protect your rights if the other party disputes the debt.

For example, imagine that a customer claims that the goods were never delivered or that the services were not performed to the agreed extent.

If the creditor has only an invoice, proving the claim may be considerably more difficult than if it also possesses signed delivery notes, handover records, email correspondence, and other documentation confirming the course of the business relationship.

Timely Action

Companies often delay taking action because they wish to preserve a good business relationship. This is understandable, particularly when dealing with a long-standing customer or a strategic business partner.

However, prolonged delays may make debt recovery even more difficult. If payment delays become recurring or the outstanding debt continues to grow, it is advisable to assess the situation in a timely manner and determine whether voluntary payment remains realistic or whether additional measures should be taken.

Business practice shows numerous examples of companies becoming illiquid—or even entering bankruptcy—not because they lacked business opportunities, but because they collected their receivables too late.

One or two major customers who fail to pay for several months can seriously jeopardize the liquidity of even a successful company. For that reason, late payment should not be viewed merely as a problem relating to a single invoice but as a potential risk to the business as a whole.

This does not mean that every late payment should immediately result in court proceedings, but neither should the issue be ignored for an extended period.

Assessing Your Business Partner

No contract can completely eliminate commercial risk. For that reason, it is important to assess the risk associated with a prospective business partner before entering into the transaction.

For example:

• Is the business partner’s bank account subject to a long-term blockage?
• What do its financial statements indicate?
• Are numerous court proceedings pending against it?
• What is its business reputation?
• Does it regularly meet its obligations toward other business partners?

Such due diligence cannot guarantee a successful business relationship, but it is an important element of commercial risk assessment.

One of the most common mistakes we encounter in practice is applying the same business terms to every customer and business partner, regardless of their size, financial stability, or previous payment history.

For example, there is a significant difference between doing business with a newly established company for the first time and working with a company that has met its obligations regularly for many years. Depending on the circumstances, you may decide to require advance or partial advance payment, shorter payment terms, appropriate security instruments, or additional documentation confirming the delivery of goods or performance of services. On the other hand, such measures may not be necessary for a long-standing and trusted business partner.

Nevertheless, even a long-standing business relationship is no guarantee that problems will never arise. Financial difficulties, changes in ownership, or changing market conditions may also affect companies with an excellent payment history. For this reason, it is advisable to review the terms of cooperation periodically and adjust them where necessary rather than assuming that existing arrangements will always remain appropriate.

Legal Advice Can Prevent Future Disputes

Many business owners consult a lawyer only when they decide to initiate litigation or enforcement proceedings. However, legal assistance can be far more valuable at a much earlier stage.

When concluding a contract, selecting appropriate security instruments, or reviewing documentation, it is often possible to identify risks that could later develop into lengthy and costly disputes.

For that reason, legal advice should not be viewed merely as a means of resolving disputes but also as a way of preventing many disputes from arising in the first place.

Conclusion

Successful debt recovery sometimes depends on the creditor’s persistence. More often, however, it depends on the quality of the claim protection put in place at the outset and on whether the business relationship was properly structured and documented from the very beginning.

Once a dispute arises, the creditor’s legal position largely depends on decisions made much earlier. Successful debt recovery is therefore not simply a matter of choosing the right enforcement or litigation strategy—it begins with careful planning of the business relationship itself.

A well-drafted contract, appropriate security instruments, comprehensive business documentation, and timely action can significantly improve the likelihood of recovering a claim without lengthy disputes or unnecessary costs. The more clearly the business relationship is structured and documented from the outset, the greater the likelihood that the claim will be recovered promptly—or that a dispute will never arise at all.

Petrović Mojsić & Partners Law Firm