How to collect receivables from Bulgarian clients easier?

The situation: You are a Czech supplier of goods or services, which has a Bulgarian client. The terms and conditions of the supply are set forth in a written contract. The payment will be made in arrears (deferred). On top of the commercial tools, which are typically available to you to mitigate the risk of non-payment (e.g. security by pledge / mortgage on assets, bank guarantee, insurance coverage, factoring), you could follow these 10 simple legal tips:

Notarization of signature

The signatures of the parties to a contract could be notarized (by one and the same or by different Notary/ies Public) in the Czech Republic or Bulgaria or anywhere else. The notarization will avoid the burden of suing the client in Bulgarian court. Instead, court could issue directly (without a lawsuit completed beforehand) a document, by which you will be able to refer your receivables to an enforcement agent, who will handle the collection process. The costs of notarization of signatures in Bulgaria are generally lower than in the Czech Republic and often turn out to be insignificant compared to the associated benefit.

Title vs full payment and recordation of contract

For supply of goods, you and the client are free to agree (and commonly do so) that the title to the goods will pass from you onto the client only upon the full payment of the price. Such contracts could be recorded at the Bulgarian Registry of Non-Possessory Pledges. The recordation will give you priority to other creditors of the client, if such other creditors attempt to enforce their receivables from the client by recourse to those goods.

Collision of General Terms of Business

Normally suppliers use General Terms (GTs) of Sale (Supply). Big clients, however, could, on their side, also use GTs of Purchase (Procurement). In a situation of rush for the deal, it may happen that each party refers in the document it provides to the other (offer or acceptance) to its own GTs and those GTs give contradicting solutions to a disputable matter. Whose GTs prevail then? Answers could differ, because: in one case could prevail the GTs of the party, which referred to its GTs later than the other; in another case, the 2 GTs will knock each other out and neither will apply. The safe harbour to you, in any case, would be either to state expressly upfront in your offer that you do not want the contract, if the client’s GTs differ from yours, or to disclaim the contact immediately after the client refers to his GTs in the acceptance.

“I will pay after my sub-client pays me”

Where the goods originally supplied by you have been on-sold by the Bulgarian client to a sub-client, a common excuse by the Bulgarian client for holding the payment to you would be: “I will be able to pay right after I get paid by my sub-client”. If that commitment is genuine, you would then have a valid point to request that the Bulgarian client assigns to you the receivables from the sub-client. The assignment could be drafted in a way as to create a security measure to your benefit.

Avoid extremely aggressive penalties for delay

Suppliers tend to believe that severely high penalties for delay motivate clients towards timely payment. While that is true, there are, at the same time, cases, where courts find draconic penalty clauses (in one recent particular case 3% per day) unenforceable due to breach of the principle of bona fidae trading, even in dealings between companies with history of business between themselves. The amount of the penalty may stay big, but should certainly retain its objective to compensate damage, not become your primary source of income.

Promissory notes

Promissory notes are commonly used to guarantee payment. You should not over-estimate them, as they do not dedicate any asset to secure your receivables. Rather, they could only save you a lengthy lawsuit before a Bulgarian court en route to collection. Knowing that, it turns out better not to have the promissory note mentioned in the contract at all. Otherwise, court will be likely to seek a connection between the liability under the contract and the liability under the note, which wastes time and could make the note useless. Practice also shows that notes work much better, when co-signed by the management of the debtor, who will thus be held personally liable for the debt.

Preliminary security measures

If reference to Bulgarian court for the collection of your receivables is inevitable, you should arm yourself with patience. Because lawsuits take long, it often happens that by the time when the debtor is sentenced to pay, he has already cleared off all of his sellable assets. The working toolagainst such “strips” is a request to court for preliminary security measures (most efficiently freeze of cash in bank accounts) at the moment of submission of your statement of claim (or better – even before that). If the documents make your case strong, courts tend to allow the imposition of such measures, either against deposit of small guarantee or without conditions.

Upfront and periodic check at the Trade Registry

The Bulgarian Trade Registry provides free, easy-to-access and very informative online database of the corporate (and the essential aspects of the financial) status of Bulgarian companies. On the following link: https://public.brra.bg/CheckUps/Verifications/VerificationPersonOrg.ra you could obtain real-time information of the corporate developments of your Bulgarian client (change of shareholders, management, address, share capital, etc.) and get an insight into his Annual Financial Statements and (hopefully not) insolvency proceedings. Most of that would be in Bulgarian, but still sufficient to alert

Choice of applicable law

Czech suppliers normally feel more comfortable, if it is Czech law, which regulates the supply to a Bulgarian client. Expectedly, this brings up resistance from the Bulgarian client and the parties argue on the matter. If they do not agree and leave the matter “open” (no clause on governing law), more often than not they will end up in a situation, where Czech law applies (by reason of the general rule making applicable the law of the supplier). You could use this by-default situation to “trade” in exchange for another concession, which the client could make in the negotiation process.

Choice of arbitration

If the disputes arising from the contract would be referred for solution to a Bulgarian jurisdiction, inserting an arbitration clause in the contract may happen to be quite supplier-friendly. In comparison to lawsuits in courts of justice, arbitration lawsuits are generally quicker, more sensitive to the business aspects of the deal and not rarely cheaper. Needless to say, care should be taken to select an arbitration court of reputation and experience in cross-border dealings.