In the course of business operations, enterprises often face the late payment debts of their partners. Especially in the construction field, the situation of arising building materials debts is increasingly common. Therefore, enterprises need to choose a way to collect these debts. In this article, TNTP will assist you in understanding better building materials debts and how to collect them.
1. What are building materials debts?
Currently, there are no specific provisions of the law on the definition of “building materials debt”. It can be understood that the debt of building materials is the amount that The Buyer is obliged to pay to The Seller under Building Materials Sales Contract but the payment period expires without the Buyer’s payment to the Seller as agreed.
2. Characteristics of building materials debts
Firstly, for the subject: The building materials sales contract can be concluded between the buyer who is the investor or contractor, and the seller who is the supplier of building materials. In particular, the investor, contractor, and supplier of building materials can be individuals or enterprises. In this article, TNTP will mention the case in which the building materials debt arises from the contract between the buyer and the supplier of building materials who are both enterprises.
Secondly, for the value of debt: The debt can be low-value or high-value, this depends on the project scale. Normally, if the buyer and the supplier are both enterprises, most of the debts are of great value due to the nature of the project in the construction field on the large scale.
Thirdly, for the level of difficulty to collect debt: Whether the debt is easy to collect or not depends on many factors such as the project progress, the capital of the investor, the scale of the project … For example, the contractor signs a building materials sales contract with the supplier. The payment must be made according to the stages of work volume acceptance. However, due to the late construction schedule caused the delay in acceptance, the investor paid the workload to the contractor more slowly than expected, so the payment of building materials to the supplier has been also prolonged.
At this time, if the investor’s capital ensures the payment according to acceptance volume, the debt collection is not difficult since the debt arises from the fault of the late construction schedule. However, if the investor’s capital does not ensure the payment and the payment to the contractor is late, this leads to the delay in the construction schedule and the acceptance of the following stages, the debt collection will be more difficult.
In addition, the building materials debt payment time can also be prolonged due to the reason that the construction time of projects can last from 06 months to many years, depending on the project scale. When the debt payment time is prolonged, the debt collection will also be more difficult.
3. How to collect building materials debts
Initiating a lawsuit to request the return of building materials
When a building materials debt arises, if the supplier evaluates that the buyer is insolvent, the supplier may request the buyer to return the building material by initiating a lawsuit. This is the solution to ensure: (i) comply with the law; (ii) support in bad debts collection; and (iii) avoid the risk that the supplier is unable to collect the debt due to the insolvency of the buyer.
For a building materials debt, when initiating a lawsuit to claim the return of building materials, building materials usually have been used in whole or in part to implement projects and work. At this time, it is not feasible to claim the return of all intact building materials. Even if the supplier initiates a lawsuit and is accepted by the Court for the lawsuit, the return of building materials cannot be enforced in practice.
In case building materials have not been used, we can liquidate or continue to sell them to other projects and investors to recover capital. However, there are many cases where building materials have not maintained the same quality and value as the original. However, the supplier should still consider initiating a lawsuit to claim the return of building materials to reduce damage caused by the buyer.
Initiating a lawsuit to request the payment of building materials debt
In case the supplier evaluates that the buyer is still able to pay the building materials debt, a lawsuit to claim payment of building materials will bring more benefits than the solution of returning building materials. In addition to the principal debt, the enterprises may require the buyer to pay the late payment interest corresponding to the late payment period.
For this option, the feasibility of debt collection depends on the buyer’s solvency. In case the request for initiating a lawsuit is accepted by the Court, whether the execution of the judgment is quick or slow will entirely depend on the conditions of judgment execution of the buyer. The recovery period will likely be longer than the return period of building materials.
Therefore, enterprises can choose one of the two above options to collect the building materials debt. It is recommended that the option to sue for payment of building materials will be more beneficial for enterprises than the one to sue for the return of building materials since most of the building materials will be used in the works and projects immediately after the supplier delivers them in reality. In addition, if the option to sue for the collection of building materials debts is chosen, the supplier has the right to request the buyer to pay the interest under the provisions of law.
The above is the legal share related to the building materials debts and the applicable methods to collect these debts. I hope this article is useful to you.
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TNTP & Associates International Law Firm