Economic growth in the Baltic states has decelerated, and media reports are teeming with news of companies with solvency problems. Many businesses have clients who can't fulfill their monetary obligations and must create an action plan in order to collect unpaid sums.
The first critical aspect of effective debt collection that you must be aware of is to act fast. The more time passes the less chance you have to receive payment. This means that a creditor must enter into negotiations with his or her debtor as soon as possible and try to agree upon the new terms of payment. If the negotiations are not effective and new payment terms cannot be agreed upon, or the new terms are also breached, it is probably justified to seek professional assistance.
Using a professional debt collector is practical because it allows the creditor to focus on its primary activities. In Estonia, the collection service is mainly provided by debt collection agencies and law firms, and in general these two services can be categorized as out-of-court and judicial debt collection.
Out-of-court collection is conducted by means of phone calls, letters and meetings. The aim of out-of-court collection is to achieve a payment agreement with the debtor (often as payment schedule) and to warn the debtor of taking necessary actions if out-of-court collection does not provide results. New terms should preferably be agreed in written form because this minimizes the chances of the debtor to dispute the claim in the future. A reminder letter sent from a lawyer or a bankruptcy caution is often sufficient to influence the debtor to pay the debt or agree to new terms or payment schedule.
However, if such actions are unsuccessful, the next step should be initiating of judicial collection.
Judicial collection is initiated by filing a statement of claim, a statement for payment-order expedited procedure (maksekasu kiirmenetlus), or bankruptcy petition, with a court. Up to a 100,000 kroon (6,400 euro) claim for payment of a specific amount of money can be resolved in a formalized payment-order expedited procedure. This is the quickest and simplest judicial proceeding, in which the court proposes that the debtor pay the debt voluntarily. If the debt is not paid or disputed in 30 days, the court will resolve the petition by issuing a payment order, which is instantly collectable by the bailiff (compulsory execution of claims). According to a recent article published by the Ministry of Justice, only 10 percent of debtors dispute the petition.
Simply the fact of initiating judicial collection often influences the debtor to pay the owed sum or make a deal with the creditor. Even if the outstanding sum cannot be paid immediately, the parties can conclude a compromise (i.e., payment schedule). This is also considered a favorable result for creditors since it eliminates the threat of the claim being disputed in the future. If the compromise is breached (i.e., installment of a payment schedule is not paid), the whole claim can be collected by the bailiff.
In order to minimize the chances for debtor to dispute the claim the main terms of a transaction should always be fixated in a reproducible form. Even though conclusion of a written agreement is not always possible and reasonable, the terms should at least be stated and approved for example by fax, e-mail or even a hand-written signed document.
Siim Magi is a lawyer at Glikman & Partnerid, a member firm of Baltic Legal Solutions, a pan-Baltic integrated network of law firms including Kronbergs & Cukste in Latvia and Jurevicius, Balciunas & Bartkus in Lithuania, dedicated to providing a quality 'one-stop shop' approach to clients' needs in the Baltics.
