legal counsel

What to do if my partner owes money to me?

The financial sum invested into “crediting” of such client is then missing for purchase or raw materials, resources, wages/salaries, etc. In such case the businessman must act quickly. The older the receivable, the more doubtful it is. Moreover, such receivable loses its creditworthiness. One of available possibilities is to address a company specialized in collecting/purchasing the debts. Teams of these companies comprise economists, computer experts, accountants, assessors, auditors or lawyers with long-time practice “in the field”. Such company is then able to create a precise module of funding your receivables, takes care of their management and proposes certain possibilities, how to avoid such problems. Your top management will not have to deal with the issue, what to do with the receivables, how is it possible that so many businessmen and companies owe money to us.

How to prevent origination of receivables (outstanding debts)?

The basic objective of business is to reach profit. Goods, services or work of other business entities are certainly necessary for it. Fulfilment of all obligations and payables, following from mutual relationships between entrepreneurs, properly and in due time is the necessary prerequisite for reach of goods results and thus profit. With respect to the fact that experience of the majority of  entrepreneurs with invoice selling is negative, it is necessary to avoid unpaid receivables.

“The best secured receivable is the receivable that has never occurred!” Each individual entrepreneur and manager shall permanently keep an eye on this catchword. The case is in principle very simple. It is the rule “from hand to hand” or “CASH & GO“. It means that the customer brings cash, pays for the goods to the supplier, takes the goods and leaves satisfied. It is certainly not possible in all cases; it is necessary to perform such security of debtor’s fulfilment and such security of the payables that the risk of non-fulfilment of the obligations may be minimized.

How to verify and check the business entity?

Not to lose the time (so valuable for businessmen), it is necessary to verify and check the basic information about the entity that intends to do business with us. The crucial information is to establish who I deal with, because both the natural person or the legal entity can become the contract partner of the business relationship. Besides its legal character the trading company has its own economic features. Certificate of Incorporation (abstract from the Companies Register) is necessary in case of the trading company, the trade certificate shall be requested from the natural persons; establishment whether or not they are taxpayers is necessary in either case. In the trading companies it is advisable to check who and how is authorized to act on behalf of the company and who is its owner. Websites of the Ministry of Finance and their ARES programme belong to the most favourite addresses concerning this information.

It is also advisable to check whether or not this business entity is not a chronic dodger. It has to be highlighted here that release of the entities in the internet databases in the receivables market does not necessarily mean their insolvency or payment indiscipline. Any agency has to be addressed here with the possibility of consulting and examination of such future client.

What is advisable to incorporate into the contract to avoid receivables?

“A well done contract is better than three lawyers.” The maximum attention has to be paid to execution of the contract, because it must conform to its significance, basic relationship, governing law, obligations, etc. It is also important, whether or not it is the contract with a long-time business partner, establishment of a business relationship with the intention to create a longer-time business relation or a single deal. We do not want to dictate here, how the contract should look like, we want to draw attention to certain possibilities which can be incorporated into the contract to avoid occurrence of receivables or at least to minimize them. Each renowned lawyer or attorney will create the contract so that it conforms to the legislation and at the same time to all our requirements.

What are the contract possibilities to guarantee debtor’s performance and secure the obligations?

We will refer in this section to relevant provisions of the Act No. 89/2012 Sb., the Civil Code (hereinafter referred to as NCC – New Civil Code) which regulates its basic features.  


Opening of the letter of credit – § 2682 of NCC or cash depositing

The debtor or the business partner who would like to make a business with you, deposits the agreed sum to the identified bank account or into the custody by the notary public or by the lawyer’s office. On the basis of the agreed terms and conditions between the creditor, debtor and the bank (lawyer’s office or notary public) the contract goods or services handover is performed against release of the relevant sum that will credit your account (in cash or by another method). The letter of credit in principle secures payment of the agreed price for the goods or services, based on the executed contract.

Bill of exchange

The sector of bills (of exchange) is regulated and governed by the Bill and Check Law No. 191/1950 Sb. Reasons for utilization of the bills are mainly as follows: the bill, being the security transferable by endorsement, enables quick transfer and marketability. The bill of exchange legislation is simple and strict, even the courts work quickly with the bill in our country. The bill must be secured. It is advisable that a third entity (AVAL) or more entities secure the bill. It has to be pinpointed here that the bill has its precise requisites (otherwise it is invalid) and authenticity and solvency of the persons, that have signed the bill, has again to be verified and checked.

Reservation of title – § 2132 of NCC

Arrangement of the so called reservation of the title in the contract grants an advantageous position to us. Such arrangement means that till the decisive moment of transfer of the title (e.g. payment of the total sum in due time or payment of the last instalment) the seller remains owner of the thing and in case of breach of the obligations by the buyer (e.g. the buyer is in delay with payment of instalments) the seller may claim return of the thing arising from protection of the title. Reservation of the title is applicable towards the buyer’s creditors only if such arrangement was made in the form of a public document and/or in writing and signatures of the parties hereto were authenticated (reservation of the title is effective only from the day when the signatures were authenticated). If reservation of title has been agreed concerning the thing included in the public list, it will be applicable towards third persons only if included in such list.)

Right of lien – § 1309 of NCC

The right of lien is in principle the creditor’s right to claim satisfaction of its receivable from the yield of monetization of the pledge, provided that the debtor failed to fulfil his obligation properly and in due time. In addition to it, execution is another possibility to satisfy the creditor’s receivable – while exercising the right of lien, the creditor is enabled to sell the pledge (which the creditor may dispose of) at the public auction, provided that the debtor is notified in advance of such procedure. Under these conditions and if agreed so in the contract with a specific proposed procedure, the creditor can sell the pledge even by another method.

Guarantee – § 2018 of NCC

This method of security of the debt for business relationships is relatively simple and the complete regulation is contained in the Civil Code. The guarantee is created by the unilateral written declaration of the guarantor to the creditor that the former will satisfy him provided that the debtor fails to meet his debt towards the creditor. If the creditor fails to accept the guarantor, the former cannot ask anything from the guarantor, i.e. it is necessary that the creditor accepts declaration of the guarantor. The creditor is entitled to ask satisfaction from the guarantor if the debtor fails to pay the debt within the adequate term, though being called to do so by the creditor in writing. The call is not necessary if the creditor is unable to issue it or if it is undisputable that the debtor will not pay his debt. The ideal state is that you are able to get as many creditworthy guarantors as possible to secure your receivable on more places.

Bank guarantee – § 2029 of NCC

We can say here that this is one of the best methods to secure the debt. The bank guarantee is granted by the bank as a special kind of the financial guarantee to satisfy the creditor up to certain financial sum. It can also concern the non-monetary receivable; this case is understood as guarantee of the monetary receivable. Regulation of the relationship following from the bank guarantee is contained in the warranty deed which must be made in writing and its wording is decisive in the relationship of the debtor, creditor and the bank. The basic procedure is that the creditor at first calls the debtor to perform and only if the call is vain, the former calls the bank. This creditor’s obligation is applicable only if such obligation is incorporated in the warranty deed. If the obligation to call the debtor is not agreed explicitly in the warranty deed, the creditor may claim performance directly from the bank. The bank performs only upon the written creditor’s call and at the same time asks submission of the documents identified in the warranty deed. The bank can also restrict time period of validity of the guarantee or raise different objections. It is therefore necessary to consult the warranty deed thoroughly with the lawyer in advance.

Right of retention – § 1395 of NCC

The right of retention can also become the security method for the creditor. It consists in the fact that the creditor, obliged to release somebody else’s movable (e.g. the car after the repair) is entitled to retain it as a security of the mature debt (price of the repair) and notify the debtor about the applied right of retention. The right of retention is the legal coercive method for collection of the receivable. If the debt is not paid voluntarily or secured  in another way, the creditor, who has secured its receivable by the right of retention, is entitled to the priority satisfaction from the yield of monetization of the retained thing compared with all other creditors. He, ho has the thing wrongfully, in particular he who has seized the thing by force or deceit, may not retain such somebody else’s thing.

Debt acknowledgement – § 2053 of NCC

If the debtor acknowledges his debt (as far as its reason and amount is concerned), this right is statute barred after expiry of ten years from the moment when the debt was acknowledged. The acknowledgement must be in writing and the text must contain the phrase “I acknowledge the debt in terms of reason and amount” with a precise specification, on the basis of what legal title the debt has arisen and what is its amount (e.g. amount of the principal). If the debtor likes to contest the debt at any time in the future, he would have to prove by himself, that the debt was not existing at the moment of its acknowledgement and/or that it has been settled after debt acknowledgement.


Security transfer of right – § 2040 of NCC

By the agreement of security transfer of the right the debtor or a third person/entity secures its debt by temporary transferring its right (title) top the creditor. The security transfer of right is understood transfer with a condition subsequent, i.e. a temporary transfer of the right (after fulfilment of the conditions it will be transferred back). If the secured debt is not met, transfer of the right becomes unconditional and the debtor hands over everything to the creditor, what is necessary for full exercise of the transferred right. If the usual price of the security exceeds the amount of the secured debt, the creditor shall pay the sum corresponding to the difference to the person that has granted the security; the creditor shall add the costs spent effectively in connection with exercise of the security transfer of right.

If the security transfer of right concerns the thing included in the public list (e.g. the land register), it becomes effective at the moment of enlisting. If the title is transferred for security and if the thing was handed over to the creditor, the latter has to keep it with him for the whole time period of security transfer of the right and the creditor is obliged to perform simple thing management.


Advance (earnest) payment – § 1808 of NCC

If the advance (earnest) payment was agreed (e.g. a financial sum), it has to be handed over upon execution of the contract at the latest. The advance payment confirms execution of the contract and the party to the contract, that has submitted it, grants the security that it will fulfil the debt; if the debt is really satisfied, the advance payment has to be returned. If the debt is not satisfied by the party that has submitted it, the other party hereto may keep the advance payment. If the party that has accepted the advance payment fails to satisfy the obligation, the other party hereto is entitled to twice as high sum of the advance payment or to fulfilment of the debt by the debtor or – if fulfilment of the debt is no more possible – to the relevant indemnity. If the party submitted the advance payment and at the same time the right of withdrawal from the contract was agreed without any compensation, the advance payment shall be understood the compensation. If the party that has submitted the advance payment withdraws from the contract, it loses the right to its repayment (return); if the party that has accepted the advance payment withdraws from the contract, it shall hand over twice as high sum to the other party hereto.

When are the invoices barred and when and how the period of limitation is suspended (discontinued)?

If not specified otherwise by the Civil Code for individual rights, the period of limitation amounts to three years. The period of limitation starts to run from the day when the obligation could be raised for the first time, i.e. in principle from its maturity or from the moment when the debtor could be asked to perform, if maturity was not agreed. By limitation the right to fulfilment of the obligation of the other party to the contract does not cease to exist, but can be awarded by the court, if the obligated person objects limitation after expiry of the period of limitation.

The period of limitation is discontinued, inter alia, when the creditor institutes legal proceedings in order to satisfy or determine his rights. The decisive fact is whether or not you have filed an action to the court and not whether or not you have reminded the debtor. The period of limitation can be newly agreed; the min. period of limitation is 1 year and the max. period of limitation is 15 years. This way the period of limitation cannot be agreed to the detriment of the so called weaker party.

What can be done with the receivable (outstanding debt)?
  • To search actively for the party/parties interested for any reason in the receivable.
  • To realize offset (compensation), i.e. to obtain goods, services or another form of performance instead of the receivable.
  • To deal with the receivable – to purchase or to sell it.
  • To monetize it in the form of factoring.
  • To perform tax and accounting operations with them, thus optimizing their effective use within the cash flows of the company.
  • To pledge the receivable.
  • To argue with it when negotiating.
  • To apply it when acquiring a real estate.


We draw your attention to the fact, that this is a very general and brief information of informative character only, it cannot be understood any legal advice. No legal or other conclusions can be deduced from it  anyhow.