Measures for recovering overdue corporate debts: Effective procedures in compliance with the law

In commercial practice, overdue debts are relatively common, particularly in transactions involving the sale of goods, provision of services, construction contracts, or business cooperation between enterprises. In practice, many debts initially arise as ordinary late payments but subsequently become uncollectible debts due to failure to take action timely, thereby seriously affecting the cash flow, operational capacity, and financial planning of the enterprise.

Nevertheless, debt recovery activities are not merely a matter of “collecting”; they must be conducted in proper procedures, backed up by a structured plan, and in compliance with statutory regulations. Applying appropriate measures at the right time not only enhances the chance of successful debt recovery but also mitigates risks of disputes or potential legal liabilities for the enterprise itself.

Through this article, the Attorneys of TNTP shall analyze the debt recovery measures commonly applied in practice, clarify the procedural steps, and highlight the risks that enterprises must manage during the course of debt collection.

1. Direct engagement with the debtor to urge payment

When should the enterprise meet directly with the debtor?

An enterprise should prioritize direct meetings with the debtor in cases where the debt has only recently become overdue, the debtor still operates, or still demonstrates good faith in cooperation. This stage is crucial for assessing the debtor’s actual financial capacity and willingness to cooperate in the repayment process.

In many instances, direct engagement enables the enterprise to promptly identify the reasons for delayed payment, thereby lay the foundation for an appropriate subsequent recovery plan.

Matters and information to be clarified during the meeting

During the meeting, the enterprise should ascertain, including but not limited to, the following key issues:

• The parties attending the meeting;
• Principal debt, default interest due to late payment, contractual penalties, and the legal grounds giving rise to repayment obligations;
• The due date for payment;
• The debtor’s repayment capacity;
• Proposed repayment schedule in installments or a firm commitment to a repayment deadline.

It is particularly important that the meeting discussions, information, and documents exchanged should be recorded in a Minutes of Meeting or Debt Confirmation Record (duly signed and sealed by both parties), serving as a vital legal basis for subsequent enforcement measures.

Notes when engaging directly

Direct meetings must be conducted in good faith, on a cooperative basis, and in strict compliance with applicable laws. The enterprise must refrain from any conduct amounting to threats, coercion, defamation, or unlawful pressure against the debtor.

Furthermore, when conducting meetings at the debtor’s headquarters, place of business, or workplace, the enterprise should proceed only with prior appointment, consent, or coordination from the debtor, so as to avoid disputes or complaints relating to interference with business operations, public order, or the debtor’s lawful rights and interests.

2. Telephone reminders

Circumstances for applying telephone reminders

The measure of calling the debtor to remind payment is most effective for debts that have not been overdue for an extended period, where the debt amount is not overly complex, or in cases where the enterprise seeks to expedite payment prior to resorting to more stringent measures.

This method helps maintain regular communication with the debtor and creates an appropriate level of pressure to encourage repayment.

Communication approach to enhance debt recovery

When making a call, the enterprise should communicate briefly, clearly, and focus on the debtor’s payment obligations. The conversation should cover:

• The outstanding debt owed by the debtor;
• The duration of the overdue period;
• Records, documents, and legal grounds giving rise to the obligation;
• The enterprise’s intended plan or subsequent measures in the event of continued delay.

Throughout the exchange, a professional demeanor must be maintained, avoiding arguments or the use of offensive language.

Limitations in telephone reminders

The enterprise should avoid excessive calling frequency, contacting outside appropriate hours, or using threatening or insulting language to exert pressure on the debtor. Conduct exceeding legal boundaries may give rise to disputes or legal liabilities against the enterprise.

Additionally, in cases where calls are recorded for evidentiary purposes, the enterprise must ensure that the use of such data complies with applicable legal regulations.

3. Sending payment demand letters/documents to the debtor

Why is this an important measure?

In debt management practice, a written payment demand constitutes one of the most important measures, as it formally expresses the enterprise’s request for payment. It serves as evidence that the enterprise has demanded payment. In many cases, such a demand letter also becomes crucial evidence in litigation or dispute resolution before the Court or Arbitration.

Essential contents of a payment demand letter

A payment demand letter should include, at minimum, the following:

• Information of the parties;
• Legal grounds giving rise to the payment obligation;
• Outstanding debt amount;
• Duration of overdue payment;
• Specific payment request (principal debt, interest, penalties, damages, etc.);
• Deadline for performance of the obligation;
• Legal consequences in the event of continued default or breach of commitments.

The enterprise should also attach interest calculation tables, debt reconciliation statements, invoices, acceptance records, or other relevant documents to clearly establish the payment obligation and the basis for the demand.

Effective methods of delivery

The demand letter should be delivered through methods that can confirm receipt by the debtor, such as:

• Email (electronic mail, where the parties have electronic signatures);
• Express courier with delivery confirmation.

Proper storage of all documents and evidence of delivery and receipt is essential in the event the matter escalates to dispute resolution proceedings.

4. Sending debt confirmation or reconciliation documents

When should an enterprise reconcile debts?

This measure is typically applied when the debt has been occurred for a prolonged period, having discrepancies in the amount, or prior to initiating litigation before a competent dispute resolution authority.

Debt confirmation helps minimize disputes relating to the numbers once the debtor has acknowledged the obligation; it also shortens litigation proceedings before Court or Arbitration, as the enterprise need not prove the debtor’s obligation through other documents or evidence, therefore save time, costs, and expedite debt recovery.

Matters to be confirmed

A Debt Confirmation Record or Reconciliation Statement should clearly set forth:

• Total value of the obligation incurred;
• Legal grounds giving rise to the debt;
• Amounts already paid;
• Outstanding amounts;
• Date of debt occurrence;
• Default interest or contractual penalties (if any);
• Commitment to repayment deadline;
• Method of payment;
• Debtor’s liability in case of breach of obligations.

Where disputes remain, the unresolved matters should be expressly recorded to avoid affecting the portion of debt already confirmed.

Legal significance of debt reconciliation

A Debt Confirmation Record constitutes highly valuable evidence in dispute resolution. In many cases, it directly substantiates the debtor’s payment obligation. Pursuant to Article 91 of the Civil Procedure Code 2015, litigants bear the burden of proof that their claims are well-founded and lawful.

Furthermore, a Debt Reconciliation Record is significant in determining the statute of limitations for initiating proceedings. Under Article 157 of the Civil Code 2015, the limitation period for initiating a civil lawsuit recommences from the day following the debtor’s acknowledgment of part or all of the obligation to the claimant.

Accordingly, in certain cases where the debt has been outstanding for a long time and the enterprise has not initiated proceedings, resulting in expiration of the limitation period for claiming interest, the debtor’s acknowledgment of the obligation resets the limitation period from the day following the debtor’s signature on the Debt Reconciliation Record.

5. Initiating litigation or filing criminal complaints when the debtor ceases cooperation

When should litigation be considered?

An enterprise should consider initiating litigation when:

• The debt has been overdue for three months;
• The debtor no longer demonstrates good faith cooperation;
• Negotiations have become ineffective;
• There are indications of asset dissipation;
• Records and evidence are relatively complete.

In practice, many enterprises and credit institutions do not immediately resort to litigation but instead prioritize negotiation, granting extensions, or allowing the debtor time to overcome financial difficulties and continue fulfilling obligations. This approach may help preserve cooperative relationships and reduce litigation costs and time.

However, not all cases require waiting until the debt is overdue for three months. If the enterprise discovers that the debtor no longer demonstrates good faith, persistently delays payment obligations, shows signs of asset dissipation, or falls into insolvency, the enterprise should consider initiating litigation earlier to mitigate risks of uncollectible debts and secure advantages in dispute resolution and enforcement proceedings. Early litigation may also establish priority in payment where the debtor owes multiple creditors.

When may criminal denunciation be considered?

In certain circumstances, if the debtor exhibits fraudulent conduct, absconds, deliberately misappropriates assets, or from the outset shows signs of incapacity to perform obligations yet still enters into contracts, the enterprise may consider filing a criminal complaint for acts indicative of criminal offenses.

Nevertheless, enterprises must be cautious when distinguishing between civil disputes and conduct with criminal indications to avoid unfounded complaints.

Issues enterprises should evaluate before applying stringent measures

Prior to initiating litigation or filing criminal denunciation, enterprises should comprehensively assess factors such as:

• Actual recoverability;
• Debtor’s financial condition;
• Litigation costs;
• Time required for proceedings;
• Value of the dispute;
• Impact on business operations and relationships between the parties.

6. Sequence of debt recovery measures

To optimize recovery prospects and minimize legal risks, enterprises may generally adopt the following sequence:

1. Telephone reminders and payment requests;
2. Direct meetings with the debtor;
3. Sending formal payment demand letters;
4. Debt reconciliation and confirmation;
5. Initiating litigation or other necessary legal measures.

Implementing the measures in proper order not only creates appropriate pressure but also supports evidence collection should disputes arise. However, it should be noted that these measures may be applied sequentially or concurrently depending on the circumstances of each case. Flexibility in application ensures effectiveness while maintaining compliance with applicable laws.

7. Key considerations in applying overdue debt recovery measures

During the debt recovery process, enterprises should pay attention to the following critical issues:

• Proactively review contracts and records from the outset;
• Systematize documents and evidence at each stage;
• Prioritize written acknowledgment of obligations;
• Refrain from unlawful measures;
• Assess statutes of limitation for litigation;
• Assess actual recoverability before commencing proceedings.

Additionally, for complex or high-value debts, enterprises should engage legal counsel at an early stage to develop appropriate strategies, mitigate risks, and enhance recovery effectiveness.

Corporate debt recovery is a process that must be carried out pursuant to a clear plan, in proper sequence, and on a sound legal basis. Combining negotiation with timely application of legal measures will improve the enterprise’s prospects of successful recovery.

Where the debtor prolongs payment obligations, lacks good faith cooperation, or disputes become complex, the enterprise should proactively review records and consult with attorneys to devise suitable strategies, thereby safeguarding its lawful rights and interests to the fullest extent.

This article, “Measures for recovering overdue corporate debts: Effective procedures in compliance with the law”, has been prepared by TNTP’Lawyers. TNTP hopes that the article will be of practical benefit to enterprises.