Debt Collection from Clients: the options you have before initiating legal proceedings

When a client fails to fulfill their payment obligation, court proceedings are not the only option, nor are they always the best one. Debt collection can be successfully carried out in several ways.

Depending on the available documentation, your previous relationship with the debtor, and the goal you want to achieve, different steps may be available to you: from informal reminders and formal demand letters, through negotiations and mediation, to enforcement or litigation proceedings.

For effective debt collection, the most important factor is an objective and timely assessment of the situation.

Prevention – how to avoid debt collection problems

The ideal business scenario is for all clients and customers to pay on time, within the agreed payment terms.

There are several tools available that reduce the risk of unpaid claims.

1) Clearly defined contracts

If each of your contracts contains precise payment deadlines and consequences for late payment (suspension of further deliveries, contractual penalties, default interest, etc.), your clients will take the business relationship more seriously and pay closer attention to timely payments.

2) Security instruments

For larger amounts, insist on blank promissory notes accompanied by an authorization letter. They are the fastest route to collecting funds directly from the debtor’s bank account.

3) Creditworthiness check

Before entering into cooperation, check the National Bank of Serbia’s blocked accounts registry and financial statements available through the Serbian Business Registers Agency. This is considered basic business hygiene.

Of course, if your business model requires advance payment for your products or services, this type of protection may not be necessary at all.

Informal reminder as a simple but effective step

In a certain number of cases, non-payment is the result of temporary insolvency or organizational oversights on the debtor’s side.

In order to maintain a professional relationship and business continuity, a clear and professional reminder to the debtor should come before other formal steps.

The reminder should be precise and clearly indicate which debt it refers to. It should include the basis of the debt, the amount, and the payment deadline, and it is best sent by email in order to create a written record and facilitate future proof of the claim.

This step often leads to quick payment or at least provides clearer insight into the debtor’s position regarding the debt.

Debt collection through a formal demand letter

Creditors, often exhausted by long waiting periods and repeated requests for payment, consider initiating enforcement proceedings as the next step after unsuccessful collection efforts. However, such an approach is not always the most efficient one.

Court proceedings take time, generate additional costs, and often further damage a business relationship that can hardly survive afterward.

At the same time, in many cases there is room to recover the debt without going to court, provided the right approach is taken.

A professionally drafted formal demand letter on a law firm’s letterhead sends a clear message to the client that you are prepared to take more serious steps.

A formal demand letter should include:

• The exact amount of debt
• The number of the unpaid invoice and its due date
• A deadline for voluntary payment (e.g. 5 days)
• Notice of initiating enforcement proceedings if the debt is not voluntarily settled

Although a professionally drafted demand letter is a highly effective debt collection tool, it does not obligate the creditor to actually initiate court proceedings if the debtor fails to comply.

Negotiations and amicable debt settlement

In situations where the debtor does not dispute the debt but is unable to settle it immediately, an amicable solution may be considered.

Depending on the specific circumstances, you may:

1. Ask the debtor to settle the amount owed within an extended payment deadline, or
2. Negotiate:

• Debt acknowledgment agreement – this agreement is essentially a new contract that interrupts the statute of limitations period. Once notarized, this document has the force of an enforceable instrument.
• Debt restructuring agreement – an agreement similar to a debt acknowledgment agreement, but with a more favorable repayment model. The debtor pays in installments or over a longer period, usually with additional security instruments.

This approach is particularly effective when both parties have an interest in continuing their business relationship.

Mediation as an alternative to court

Mediation is an alternative dispute resolution method in which a third, neutral, and impartial party – the mediator – helps the conflicting parties negotiate and reach a mutually acceptable solution.

Mediation is a voluntary and confidential process with shorter timelines than court proceedings, making it significantly faster and less expensive. An agreement reached through mediation has the same legal force as a court judgment.

You may also engage a lawyer to represent your interests during mediation proceedings. In this context, the lawyer focuses on finding a mutually acceptable solution rather than “winning” as in litigation.

Mediation is particularly useful when communication between the parties still exists and both sides aim to reach an agreement, but there is a conflict that first needs to be resolved.

Forced debt collection

If the formal demand letter and/or mediation do not produce results, it is time to initiate forced debt collection.

Before taking any steps, it is necessary to assess the legal basis of the claim.

The key questions are:

• Is there a contract (written or oral)?
• Are payment deadlines clearly defined?
• Has an invoice been issued?
• Is there proof that the service was provided or the goods were delivered?
• Is there communication confirming the debt?

The quality of this documentation determines the legal route, the speed of collection, and the likelihood of success.

Enforcement proceedings – collection based on a credible document

If the creditor possesses a credible document (e.g. an invoice accompanied by a delivery note or other proof of delivery of goods or services, an extract from business records, a promissory note), enforcement proceedings may be initiated.

These proceedings are focused on collection and are generally faster than litigation. However, if the debtor files an objection, enforcement proceedings continue as litigation.

Litigation for debt collection

Litigation is initiated when the debt remains unpaid and there is no agreement between the parties, or when the debt is disputed.

This procedure enables the establishment of the claim and the issuance of an enforceable decision, which is then carried out through enforcement proceedings. However, the debtor’s objection does not delay enforcement.

It should be kept in mind that litigation:

• takes longer than enforcement proceedings and mediation
• involves higher costs (court fees, attorney fees, expert witnesses)
• carries procedural uncertainty

How to choose the right approach?

There is no universal solution applicable in every case.

The choice of debt collection method depends on:

• the amount of the claim
• your relationship with the client
• the client’s solvency
• available documentation
• the creditor’s goal (quick collection or continuation of cooperation)

In practice, the most effective phased approach is:

reminder → demand letter → negotiations → legal proceedings

The role of a lawyer in debt collection

A lawyer becomes involved long before court proceedings begin.

Their role includes:

• assessing the creditor’s legal position
• selecting the optimal collection strategy
• drafting demand letters and agreements
• representation in proceedings

In many situations, involving a lawyer in a timely manner means faster collection and avoiding unnecessary costs.

FAQ – Frequently asked questions about debt collection

Is it mandatory to send a demand letter before filing a lawsuit?

Sending a demand letter is not mandatory in all cases, but it is recommended in practice because it may lead to collection without initiating proceedings.

Another purpose of the demand letter is to inform the debtor about the basis and status of the debt before initiating enforcement proceedings based on a credible document.

What if the debtor has no funds in their account?

If the enforcement debtor has no funds in their bank account, the public enforcement officer proceeds to examine their assets. Vehicles, shares in other companies, or real estate may be seized.

If the debtor is a sole proprietor, they are also personally liable with their private assets. If the debtor has no assets at all, the proceedings are suspended due to impossibility of enforcement, but may be reopened if the debtor later acquires assets.

Is it worth suing over small amounts?

For small claims, court fees and enforcement costs may exceed the debt itself.

Certain companies, mostly public utilities and businesses with a large number of small customers, pursue small claims in order to maintain financial discipline among other clients and for potential tax write-off purposes.

When does a debt become time-barred?

The general statute of limitations period for debt claims is 10 years. However, claims arising from commercial contracts become time-barred after 3 years. Claims against individuals for коммунal services, electricity, and telephone bills become time-barred after only 1 year.

It is important to note that courts do not consider limitation periods ex officio — the debtor must raise the statute of limitations defense themselves.

Can I initiate enforcement proceedings without a contract?

If there is a credible document (e.g. an invoice with a delivery note or an extract from business records), that may be sufficient to initiate enforcement proceedings. However, the absence of a contract may complicate the process if the debtor disputes the debt.

How long does debt collection through court take?

The duration depends on the specific case and court workload, but proceedings may last a long time (several years).

Conclusion

Debt collection is not exclusively a legal issue — it is also a strategic one.

Successful collection depends on a timely and objective assessment of the situation. That is why it is advisable to consult a professional at the very beginning, rather than waiting until the issue escalates.

Early involvement of a lawyer makes it possible to assess your legal position, evaluate the quality of your documentation, and choose the optimal collection strategy — whether that means negotiation, a demand letter, mediation, or formal proceedings.

This helps avoid unnecessary costs, shortens the collection timeline, and increases the likelihood of successfully recovering the claim.

Law Firm Petrović Mojsić & Partners