Debt recovery is unfortunately becoming more and more part of everyday business in the current economic climate. It is not always the fault of the debtor as many circumstances may have construed to cause the debtor not being able to pay the debt.

It may be that the market they are operating in has had a dramatic downturn and this has effected their cash flow or that clients who were due to pay the debtor are now not able to pay and therefore there is a knock-on effect.

In the past year unemployment has grown dramatically and for the first time in its history Spain now has over 4,000,000 unemployed. This has only added to the number of businesses failing and struggling and therefore the debts within business have increased.

Traditionally the commercial relationships between small and medium businesses in Spain have been based on a mutual trust between the service provider or supplier of goods and the client. In the current climate due to lack of liquidity and outstanding payments this relationship no longer can commercially exist.

Therefore it is strongly recommended that we carry out ‘due diligence’ on potential clients: investigating their registered address, liquidity or properties that they own; signing a contract setting out payments, due dates and interest on outstanding payments.

It is also important to charge a percentage on account of the service provided or the product supplied, so that at least the costs are covered. Only once these basic checks have been carried out and supporting documents are held that justify our commercial relationship, can the supplier then be assured that if they are not paid, they can legally claim the said amount in a successful way.

Foreign business owners have often thought that leaving the country will ensure that their debt stays in Spain and they are free of any liability. This may have been the case in previous years but now we are united in one European Union the European Courts have drafted new legislation to stop this happening. ”.

Ruling 1896/2006 establishes and regulates the European order for payment procedure as of December 12, 2008. The lawsuit should be filed in the country where the debt was incurred and the sentence can be enforced against the debtor’s property in his own country. So long as the defendant has not opposed the claim – as is the case 80% of the times.

Litigation is always the last action and it is suggestible that an agreement is reached prior to starting legal action. This not only expedites the cash flow to the creditor but also avoids legal fees. However, this is not always possible and under Spanish law there are several types of proceedings.

The majority of debts in Spain do not exceed 30,005 Euros and the Monotorio procedure will take place. After the serving of the writ of summons, the defendant then has 20 days to pay the debt in full or file a response to oppose the claim. If there is no response to the writ of summons then the procedure continues as an executive proceeding but id there is a response then the procedure continues as a verbal or ordinary proceeding, depending on the claim.

For the Monitorio to take place then the following documents are required. Invoices, Burofaxes, delivery notes and any documentation relating to the services supplied to the debtor must be supplied to prove the claim. The timing of theses procedures can take six months and if there is am appeal against the court decision then the procedure may be delayed for an extra two years.

Instead of using the courts to resolve any disputes then there is always the option of using arbitration. The final decision of the arbitrator can then be enforced by Spanish courts. This procedure can be quicker, cheaper and the decision is not made public which maintains confidentiality and protects any ongoing business relations.

To surmise, the best way to avoid having to enforce debt collection is to ensure that necessary due diligence is performed prior to entering into a commercial relationship and to always ensure that a provision of funds are received to at least cover costs. However, should this be done and there is still a need to recover debts it should be known that there are methods both in Spain and the European Union to enforce legal recovery. Bad debtors beware!!

This article was contributed by John Stanbridge, CEO of CCG and was also featured in Essential Magazine (a popular high class magaine circulated along the costa del sol)

To contact John please visit either the CCG website www.ccgspain.com or telephone 952 765 899.