Debt collection in Serbia – complete guide

Very often, the business relationship between two parties ends in a way that one of them is deprived of financial compensation for their work, services rendered, or goods delivered. Business partners often fail to regulate their business relations properly, avoiding the signing of any agreements that would establish their mutual rights and obligations. When there is no agreement signed between the parties, there is no legal certainty regarding the actions one party can take if the other party refuses to fulfill its obligation.

In practice, one of the most common scenarios is the non-fulfillment of a contractual obligation by the party that is supposed to pay a certain amount of money for compensation. In this case, the contractual party suffering the breach of contract should take steps to collect the claim. Debt collection, or collection of receivables, is a set of measures and actions taken when the opposing party in a court case, a contractual party, or a business partner fails to fulfill its obligation to pay a specific amount of money. Therefore, debt collection can be pursued from any individual, legal entity, state authority, or even the state itself, in cases where you have a claim against any of the mentioned parties.

Debt collection is a process that can be conducted either extrajudicially or judicially, depending on several factors. Creditors often consider the process of collection of receivables to be complicated and give up on initiating it, thereby abandoning the protection of their rights. In the following sections, we will explain the entire debt collection procedure and resolve any doubts you may have.

What is debt collection or collection of receivables?

Debt collection or collection of receivables is a procedure initiated by creditor against debtor in order to collect debt. To initiate the debt collection process, it is necessary that the claim against the debtor has matured. Most often, the debt collection process is linked to a claim arising from an invoice. In this context, in addition to other mandatory elements contained in the invoice, it must also include the due date for the payment obligation. Therefore, before initiating the debt collection process and taking any action in that regard, it is essential that the claim has matured, meaning the debtor has failed to settle the obligation by the specified due date.

Thus, first and foremost, it is necessary to issue an invoice containing all the required elements and to deliver it properly to the debtor. Only after the expiration of the payment period specified in the invoice, within which the debtor can make the payment, is it considered that your claim has matured, and you may take further steps to assert your rights, i.e., collect the debt. If the debtor fails to make payment within the stipulated period, in addition to the principal amount, they will also owe the statutory default interest.

It is important to note that the debt collection process can be initiated against the debtor based on the invoice, whether it concerns a domestic or foreign party.

Furthermore, the law imposes an additional condition for debt collection based on an invoice, namely that the creditor must also possess either a delivery note or another written proof that the debtor has been informed of their obligation. In practice, this condition is met when, after the maturity of the claim from the invoice, the creditor sends the debtor a warning notice urging them to make voluntary payment within a certain period, with the threat of initiating legal proceedings for debt collection. It is essential that this letter or warning notice is properly delivered to the debtor, and that the creditor has proof of this delivery.

Therefore, the first action for collecting debt is sending a warning notice to the debtor, inviting them to voluntarily settle the overdue debt. After the deadline specified in the warning notice expires, the creditor may take further steps to collect their debt.

Debt collection can be carried out either through judicial or extrajudicial means, and the specific process largely depends on how it is implemented. In the following sections, we will explain both methods of debt collection.

Extrajudical debt collection in Serbia – procedure

Extrajudicial collection of receivables includes:

• Sending a warning notice to the debtor;
• The expiration of the deadline within which the debtor can respond to the notice;
• Negotiations with the debtor;
• Conclusion of an agreement to regulate the obligations.

Warning Notice to the Debtor

Sending a warning notice to the debtor, specifying the amount of the debt, the basis of the claim, and providing an additional deadline for the debtor to respond, is the first step in the debt collection process. The warning notice should primarily include:

• The identification of the debtor;
• The total amount of the debt;
• The basis for the debt, including the invoice number and the date of issue;
• The due date of the debt;
• An additional period within which the debtor can fulfill the obligation, under the threat of initiating legal proceedings for collecting debt.

Negotiations

After receiving the warning notice, the debtor may often contact the creditor with a proposal for repayment in installments or other forms of debt settlement.

During this negotiation phase, the creditor and the debtor may reach an agreement on how the debt will be paid, which can result in the conclusion of an agreement to regulate the obligations, or an extrajudicial settlement.

Agreement to Regulate Obligations/Extrajudicial Settlement

If, during the negotiation phase, the creditor and debtor reach an agreement on a specific method of debt repayment, the next step would be to formalize the agreement.

In the absence of such an agreement, debtors often fail to fulfill their obligations and do not adhere to the agreement reached during negotiations.

Debt Collection Through Enforcement Proceedings

Judicial collection of receivables occurs when the debtor, after receiving the warning notice and the expiration of the deadline specified in it, fails to settle the debt, or when it is clear from the debtor’s conduct that they will not fulfill their obligation. In such cases, the creditor has the right and the possibility to initiate the enforcement process, i.e., to collect their debt through judicial means.

The enforcement of debt consists of several steps and procedures:

• Sending a pre-litigation warning notice;
• Submitting a proposal for enforcement to the competent court or bailiff (depending on the type of service from which the monetary claim arose);
• Issuance of the enforcement order (if all legal conditions and prerequisites are met);
• Delivery of the enforcement order to the designated bailiff (unless the bailiff issues the order), who then delivers the enforcement order to both the creditor and the debtor.

Pre-Litigation Warning Notice

The pre-litigation warning notice contains the same elements as the previously mentioned notices, and it is especially important for the creditor to have proof that the debtor has duly received the notice.

Proposal for Enforcement Based on Invoice

A proposal for enforcement is submitted to the competent court, which is authorized by law to decide on it and issue the enforcement order. However, depending on the type of service from which the claim arose, the public bailiff may also be authorized to decide on the proposal for enforcement.

Specifically, a proposal for enforcement based on a valid document for the collection of a monetary claim arising from utility services and related activities is submitted to a public bailiff. Before submitting a proposal to the bailiff, the creditor must submit a request to the Chamber of Public Bailiffs, which will assign a bailiff to whom the creditor will submit the proposal.

In the enforcement proposal, the creditor is required to provide the debtor’s and creditor’s identification details. Depending on whether the creditor and debtor are individuals or legal entities, the law prescribes different types of information that must be included in the proposal.

Additionally, in the proposal for enforcement, the creditor must specify the valid document, the claim of the creditor, one asset or item, or multiple assets and items for enforcement, or request that enforcement be carried out on all the debtor’s property, as well as other information and documents necessary for the enforcement process.

Moreover, in the proposal for enforcement, the creditor must request that the court obligate the debtor to settle the creditor’s claim, including the assessed procedural costs, within eight days. The creditor must also specify the (locally competent) bailiff who will carry out the enforcement.

Finally, the creditor is required to attach the original invoice, a certified copy, or a transcript. If the invoice was issued by a foreign legal entity, the creditor must also provide a certified translation by a court translator.

What are Instruments and Subjects of Enforcement?

Instruments of enforcement are actions taken to satisfy the creditor’s claim against the debtor. These may include, for example, transferring funds from the debtor’s account to the creditor’s account, transferring the debtor’s monetary claims, selling the debtor’s property, etc.

On the other hand, enforcement subjects are the things and rights over which the enforcement is carried out. As previously mentioned, the creditor must specify the enforcement measure and object, or multiple measures and objects, in the enforcement proposal. In the enforcement order, issued based on such a proposal and aimed at satisfying the monetary claim (in our case, based on an issued invoice), the enforcement measure and object specified in the proposal are determined.

If the proposal includes multiple enforcement instruments and subjects to be carried out simultaneously, all will be specified in the enforcement order. In this case, the public bailiff may limit the enforcement to only some of the measures and objects, and if these are insufficient to satisfy the creditor’s claim, the bailiff will issue an order to carry out further enforcement with other instruments and subjects.

However, the creditor requesting enforcement to satisfy a monetary claim from an enforceable or valid document is not obliged to specify the enforcement instrument and subject (i.e., enforcement on all the debtor’s property). In this case, the enforcement is carried out on the debtor’s entire property.

Objection by the Debtor

After the court or bailiff issues the enforcement order based on a valid enforcement proposal and the order is delivered to the debtor, the debtor has the right to file an objection. The objection can be filed within eight days from the date of receiving the enforcement order. It is important to note that the objection suspends the enforcement of the order issued based on a valid document (in our case, an invoice) until the decision becomes final. The objection is submitted to the creditor, who has five days from receipt to respond.

The debtor may file an objection challenging the enforcement order for the following reasons:

1. If the claim from the valid document has not arisen;
2. If false information is included in the valid document;
3. If the claim from the valid document has not matured;
4. If the obligation has been fulfilled or otherwise terminated;
5. If the claim is time-barred;
6. If the claim has not been transferred or assigned to the creditor, or if the obligation has not been transferred or assigned to the debtor;
7. For reasons specified by special laws.

If the debtor files an objection disputing the enforcement order, they must make their claims credible in order for the court to accept the objection. If the court accepts the debtor’s objection, the further process continues as a civil lawsuit proceedings. This means that the following actions will be taken:

• Scheduling a hearing;
• Submitting evidence and holding hearings where the evidence is presented;
• Issuing a judgment;
• Continuing or halting the enforcement process, depending on the court’s decision.

If the court in the civil lawsuit proceedings issues a judgment that fully or partially upholds the enforcement order regarding the debtor’s obligation to settle the claim, the enforcement procedure will continue after the judgment becomes final, as it was at the time the enforcement order was issued. On the other hand, if the court issues a judgment that completely cancels the enforcement order concerning the debtor’s obligation to settle the claim, the enforcement procedure will be halted after the judgment becomes final.

What is a Valid Document?

Although this text discusses debt collection based on an issued invoice, the invoice is just one type of valid document recognized by law, based on which you can initiate the enforcement process for your claim. Valid documents also include:

1. Promissory notes and checks from domestic or foreign parties, with a protest if required for establishing the claim;
2. Extracts from the Central Securities Register regarding the balance of the lawful holder of bonds or money market instruments (treasury bills, cashier’s bills, and commercial papers), and decisions regarding their issuance;
3. Extracts from business records for performed utility or related services;
4. Statements or extracts from business records for a claim for a public media service fee;
5. Public documents that create enforceable monetary obligations;
6. Bank guarantees;
7. Letters of credit;
8. Certified statements from the debtor authorizing the bank to transfer funds from their account to the creditor’s account;
9. Interest calculations with evidence of the basis for maturity and the amount of the claim;
10. Temporary or final construction work completion certificates;
11. Statements regarding the fees and expenses for attorney services.

It is also important to determine whether the valid document is suitable for issuing an enforcement order. In this sense, a valid document will be suitable for issuing an enforcement order if it contains information about the creditor and the debtor, and the object, type, scope, and maturity of the debtor’s obligation. If the maturity of the obligation cannot be determined from the valid document, the creditor is required to attach written proof that the debtor was given an additional deadline to fulfill the obligation.

Forced Collection of Claims Based on an Enforceable Document

In addition to the collection of claims described earlier, which refers to the collection of monetary claims arising from issued invoices, as a type of reliable document, we will also explain the procedure and process for collecting claims based on an enforceable document.

First, we will clarify what is considered an enforceable document.
Enforceable documents, according to the Law on Enforcement and Security Interest, are:

1. An enforceable court decision and court settlement that require giving, doing, refraining from, or enduring something;
2. An enforceable decision made in a misdemeanor or administrative procedure, and an administrative settlement requiring a monetary obligation unless otherwise stipulated by a special law;
3. An extract from the Pledge Register and an extract from the Financial Leasing Register;
4. A mortgage agreement and pledge statement;
5. A reorganization plan in bankruptcy proceedings, if confirmed by a court decision;
6. Notarial documents that have the force of an enforceable document;
7. A mediation settlement agreement, which meets the conditions set by the law governing mediation in dispute resolution;
8. A decision of the Constitutional Court that upholds the claimant’s request for compensation for damages;
9. Any other document specified by law as an enforceable document.

In this text, we will explain the procedure for forced collection of claims arising from an enforceable court decision, as it is the most common type of enforceable document based on which enforcement proceedings are initiated.

What is an Enforceable Court Decision?

A court decision refers to a judgment, order, or other ruling made in a procedure before a court, domestic arbitration court, or court of honor at the chamber of commerce. Therefore, if you have filed a lawsuit with the competent court and after the entire evidentiary procedure has been carried out, the main hearing has been concluded, and a court decision or judgment (or an order in some cases) has been issued, you possess a court decision based on which, under certain conditions, you can initiate the forced collection procedure.

A court decision or judgment must be issued to give or do something and must have become enforceable before initiating the forced collection process. A court decision becomes enforceable if it has become final and binding and if the deadline for voluntary fulfillment of the obligation has passed. Thus, only if the debtor does not fulfill their obligation within the allowed deadline for voluntary performance does the court decision become enforceable.

In this case, it is necessary to obtain the finality clause and the enforceability clause, confirming that the court decision has become both final and enforceable. The only exception to this requirement is when the proposal for enforcement is submitted to the court that originally decided on the creditor’s claim. In that case, the enforceable document is not required to have the confirmation of enforceability, even if it is submitted. In all other cases, the proposal for enforcement must include the enforceable document in its original, notarized copy, or transcript.

For an enforceable document to be eligible for enforcement, it must contain the following information: the names of the creditor and debtor, as well as the object, type, and scope of the obligation. If the enforceable document does not specify the deadline for voluntary performance, the deadline is eight days from the delivery of the enforceable document to the debtor.

Notarial Record as an Enforceable Document

One thing that creditors can do to ensure their position in terms of certainty and simplifying the collection process is to conclude a settlement agreement with the debtor in the form of a notarial record. Specifically, if the notarial record contains all the elements prescribed by law, it represents an enforceable document on the basis of which enforcement can be carried out.

This allows the creditor to, upon the maturity of the obligation, initiate enforcement proceedings by submitting a proposal for enforcement based on the notarial record as an enforceable document. In this way, the creditor can more efficiently protect their rights by directly initiating enforcement proceedings and the forced collection of their claim.

Appeal Against a Ruling on Enforcement Based on an Enforceable Document

The debtor can appeal the ruling on enforcement, and this appeal can be made on the following grounds:

1. If the document on which the ruling on enforcement is based does not have the status of an enforceable document;
2. If the enforceable document on which the ruling is based has been annulled, revoked, amended, or is no longer valid;
3. If the court or administrative settlement or the notarial settlement record on which the ruling is based has been annulled or otherwise invalidated;
4. If the deadline for the debtor’s obligation has not passed;
5. If the debtor’s obligation depends on the previous or simultaneous fulfillment of the creditor’s obligation or the occurrence of a condition, and the creditor has not fulfilled their obligation or provided security for its fulfillment, or the condition has not occurred;
6. If the claim from the enforceable document has ceased;
7. If the claim has not been transferred to the creditor or if the obligation has not been transferred to the debtor;
8. If the period for requesting enforcement has passed;
9. If enforcement has been ordered on property and rights exempt from enforcement or subject to limited enforcement;
10. If the claim from the enforceable document has become time-barred;
11. If the ruling on enforcement was issued by a territorially incompetent enforcement officer;
12. For other reasons prescribed by special law.

If the court accepts the appeal, the enforcement procedure is suspended, the first-instance ruling is amended, the proposal for enforcement is rejected, or the first-instance ruling on enforcement is annulled, and the proposal for enforcement is dismissed. If enforcement has already begun, the enforcement proceedings are not only suspended but any actions already taken in the enforcement process will also be canceled.

Payment Order

In addition to initiating the forced collection procedure for a monetary claim by submitting a proposal for enforcement, the law also provides for the issuance of a payment order as a type of procedure through which overdue claims can also be collected.

Specifically, if the lawsuit concerns an overdue monetary claim, and the claim is supported by a reliable document attached to the lawsuit in its original or certified copy, the court will issue an order to the defendant to fulfill the plaintiff’s claim, i.e., issue a payment order. This is provided that proof of a payment reminder for the overdue claim has also been attached to the lawsuit. Therefore, in this case, prior to initiating the procedure, the creditor must send the debtor a reminder.

According to the law governing the issuance of payment orders, the following documents are considered reliable documents:

1. Public documents;
2. Private documents that have been notarized by the competent authority for notarization;
3. Promissory notes and checks with protest and a return receipt, if they are necessary to establish the claim;
4. Extracts from certified business books;
5. Invoices;
6. Documents that, under special regulations, are considered public documents.

However, if the reliable document based on which the lawsuit for issuing a payment order was submitted can also be used to request enforcement, i.e., the creditor can submit a proposal for enforcement, the court will issue the payment order only if the creditor makes it likely that they have a legal interest in issuing the payment order. Otherwise, the court will reject the lawsuit.

The court issues the payment order without holding a hearing, and the order is then delivered to the parties, i.e., the plaintiff (creditor) and the defendant (debtor). The defendant has the right to file an objection within eight days from the receipt of the payment order. If the objection is filed by the defendant within the deadline, the court will schedule a hearing for the main hearing.

During the subsequent proceedings, both the plaintiff and the defendant may present new facts and propose new evidence to support their claims. After conducting the evidentiary procedure, the court will decide whether the payment order remains in full or in part, or whether it will be annulled.

Assumption of Debt

A debt assumption agreement is concluded between the debtor and the assignee, who steps into the position of the previous debtor, thereby releasing the previous debtor from the obligation. For the debt assumption agreement to be effective, the creditor must give their consent. The requirement for the creditor’s consent regarding the change of debtor through the conclusion of such an agreement is entirely justified, considering the importance to the creditor of knowing who is taking the place of the debtor.

The creditor may be informed of the concluded debt assumption agreement either by the debtor or the assignee, and either party can notify the creditor of their consent to the assumption of the debt. If the creditor has not explicitly given their consent but has accepted some performance from the assignee, which was made in the assignee’s own name, it will be presumed that the creditor has given their consent.

As long as the creditor has not given their consent to the debt assumption agreement, or if the creditor refuses to give consent, the debt assumption agreement will have the effect of an agreement for performance assumption. In an agreement for performance assumption, which is concluded between the debtor and a third party, the third party undertakes to fulfill the debtor’s obligation towards the creditor.

In a case where, at the time of the creditor’s consent to the debt assumption agreement, the assignee was over-indebted, and the creditor was unaware of it or had no reason to know, the previous debtor will not be released from their obligation to the creditor. In this case, the debt assumption agreement will have the effect of an agreement to join the debt. Under an agreement to join the debt, the third party becomes liable alongside the debtor, meaning the third party is jointly responsible with the debtor to fulfill the obligation towards the creditor.

What Is Statute of Limitations

When initiating the process of debt collection, it is crucial to be mindful of the statute of limitations. The statute of limitations occurs when the legally prescribed period during which the creditor could request the fulfillment of the obligation has passed. Once the statute of limitations has expired, the creditor loses the right to demand fulfillment of the obligation.

Depending on the type of claim, the limitation periods are as follows: ten years, five years, three years, and one year.

In certain cases, the statute of limitations can be interrupted. Specifically, the limitation period is interrupted when the debtor acknowledges the debt. This acknowledgment does not necessarily have to be in the form of a statement to the creditor; it can also occur indirectly, such as by paying interest on the debt.

The limitation period can also be interrupted by an action taken by the creditor, such as filing a lawsuit or any other action taken by the creditor against the debtor before a court or other competent authority in order to establish, secure, or enforce the claim. In the case of interruption, the limitation period begins to run anew, and the time that has passed before the interruption does not count toward the limitation period.

Therefore, it is extremely important to monitor the statute of limitations for claims and take timely actions to enforce debt collection.

FAQ about debt collection process in Serbia

Collection of receivables is often a complex and challenging process, even with clearly defined laws and procedures in place. It raises numerous doubts and poses many questions for creditors.

Some of the most common questions about debt collection in Serbia are:

Conclusion about procedure of debt collection in Serbia

Debt collection is a process initiated by the creditor who has an unpaid and due claim against the debtor. Collection of receivables proceedings can be initiated against both legal entities and individuals, as well as state bodies. The procedure differs depending on whether the claim arises from an enforceable or credible document.

However, before initiating the debt collection process, it is crucial to consider the statute of limitations, the debtor’s financial situation, and to meet other conditions necessary for successful collection of receivables. Our team of experts can help you recover your debt and protect your interest in debt collection procedure.

This article is for informational purposes only and does not constitute legal advice. If you need additional information regarding the topic in question, please feel free to contact us by email at office@ncrlawyers.com or by phone at +381677049551.