16 December 2016

There is no worse feeling after a won court case than realizing that your debtor is not going to pay, because it has no assets at all or, even worse, it has been already deleted from the company register. In this short article we provide you with 5 tips to avoid writing-off uncollectible debts in Hungary.

Background check before selling

A principle which every seller should follow is that before you enter into a contract with a new customer, you should make a background check on your the new business partner. In Hungary there are several public registers which are available for free and thus are useful tools for business actors in taking informed decisions.

The company register contains the basic data about the existing companies. By checking your would-be business partner in the company register you can avoid the annoying situation that you have sold products to a company that not even exists.

Furthermore, in the Official Company Gazette the court orders about basic company operations, such as changes in the executive officers or shareholders shall be published. In the Official Gazette you can also find information about extraordinary situations of the business operation, like mergers, acquisitions or insolvency procedures.

Annual report and tax authority database check

In Hungary every company is obliged to yearly file its annual report to the Company Information Office. Not only the information which the annual report contains, but also the fact that a company failed to file its report, can be a telling sign. You should definitely refrain from entering into a business relationship with a company who fails to comply with this basic obligation.

The Hungarian Tax Authority keeps several records about the Hungarian economic operators. If you find your future business partner in the database about the companies who have the biggest tax arrears or whose tax number is suspended, forget him and move on with a less risky customer.

By contrast, if you can find your partner in the record kept about the business operators who are free of public-law debts, you have substantial grounds for believing that your common business will be fine.

Invoicing and follow-up of the invoices

Contracts may contain special provisions about invoicing, for example to whom you shall send the invoice, what are the annexes of the invoice etc. It is important to check these provisions and keep them in your mind, since most of the agreements include the clause that an invoice will only be due when it is correct and complete and has been received by your contracting party.

Once you have issued and sent the invoice, start chasing payments as soon as the invoice become due. Actively chasing overdue debts is an essential part of minimising late payments or uncollectable debts.

Although it may seem a good idea to send reminders via e-mail reducing the postal fees, we strongly recommend you to send notice letters to Hungarian debtors by registered mail, since Hungarian courts are often conservative in this question.

Not paying? Lawyer up!

When you face the situation that despite your reminders and notice letters your business partner is still not paying, do not procrastinate to involve your lawyer.

Sometimes a letter of your attorney may be enough to prompt the payment without any further actions. If it is not the case, your lawyer can help you in finding the most cost-effective and fastest procedure for the debt recovery.

When recovering your debt keep in mind the alternative dispute resolution methods. Sometimes it is better to agree in payment plan, and receive an immediate partial payment, than waiting five years for a final and enforceable court decision which allows full recovery.

Deadlines are crucial

In Hungary if your debtor had gone into insolvency or liquidation procedure, the court order about the start of these procedures shall be published in the Official Gazette. After the publication you have strict deadlines within which you can announce your claims against the debtor.

These deadlines are really crucial, since if you fail to report your claim within the given deadline, you will not be regarded as a creditor and thus probably losing the chance to recover your debt.

More companies offer debtor monitoring services for reasonable fees, which can be really useful to prevent the situation that you miss the deadline for announcing your claim.