21 May 2020
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Guide to collection of receivables – which options does the creditor have?

The financial ramifications of the COVID-19 pandemic and the state of emergency in Serbia have hit the Serbian economy hard, leaving virtually all businesses apprehensive about their liquidity. A question now being posed across the business spectrum is how to collect receivables owed for sold goods or services rendered?

Creditors have several options at their disposal.


Enforcement proceedings

In most cases, suppliers or service providers collect receivables falling due before courts in enforcement proceedings.

To initiate enforcement and collect their receivables, creditors must possess either an enforceable instrument or a credible instrument as defined in the Enforcement and Security Act (“ESA”). In line with the ESA, enforceable instruments are enforceable court decisions, Pledge Registry or Financial Leasing Registry excerpts, mortgage agreements, pledge statements, etc., while credible instruments include bills of exchange, checks, invoices, letters of credit and bank guarantees.

The ESA collection procedure is rather simple. A creditor possessing an enforceable or credible instrument must only submit an application to initiate enforcement proceedings with the competent court and make sure that the application contains all necessary elements mandated by the ESA. Upon receipt of an application, the court forwards it and the decision to the public enforcement agent who collects against the debtor’s property by transferring assets, freezing accounts, selling immovables and movables and by other means provided in the ESA.

When initiating enforcement proceedings, the creditor should also be mindful of the enforcement expenses which are calculated against the value of the claim and are, initially, borne by the creditor.



If a creditor has neither an enforceable nor a credible instrument for direct enforcement, it is in for a long haul – litigation.

In particular, to collect any payment, a creditor is compelled to initiate litigation in accordance with the Civil Procedure Code (“CPC”) and to demonstrate during such litigation, on the basis of evidence presented, the soundness of its claim. Only after the final ruling of the litigation court becomes enforceable will the creditor be able to initiate enforcement under the ESA, a moment which may not come soon enough, seeing that litigation in Serbia routinely lasts for several years.

As with enforcements, litigants should be mindful of the litigation costs which depend on the value of the dispute and which are, initially, borne by each litigant.


Bankruptcy proceedings

In the absence of safer options, and when the Bankruptcy Act (“BA”) conditions are met, creditors may attempt to collect receivables in bankruptcy proceedings before the competent court.

In particular, the BA prescribes that bankruptcy proceedings will, inter alia, be opened where a debtor is permanently insolvent, the standard for which is if a debtor is unable to pay its obligations within 45 days of them falling due, or if a debtor completely  makes no payments whatsoever for 30 days consecutively. However, it should be noted that bankruptcies are complex and protracted proceedings and that creditors cannot hope to collect the full amount owed through bankruptcy proceedings.


 Out-of-court collection

Apart from those forms of out-of-court collections which depend on the creditor’s and the debtor’s disposition, such as compensation, debt-to-equity conversion or debt reprogramming, out-of-court collections may also take a “nastier” form. 

This is in particular a reference to debt collection by activating an out-of-court mortgage under the Mortgage Act (“MA”). Under the MA, mortgage-backed claims based on an enforceable agreement or enforceable mortgage statement registered in the Real Estate Registry as “enforceable out-of-court mortgage” may be collected out-of-court. In this case, should the debtor fail to pay when due, the creditor may, with prior notice to the debtor, register the foreclosure sale of the property in the Real Estate Registry and arrange for the mortgaged property to be auctioned or sold by private treaty.


Collection of NPLs

Regarding the collection of nonperforming loans (“NPLs”), the situation is somewhat peculiar, especially in the context of the COVID-19 economic fallout.

NPLs are loans approved to beneficiaries by banks as part of their day-to-day business the collection of which is for whatever reason uncertain, usually resulting in the creditor bank leaving the debtor 90 days to pay what is due. NPLs, like all loans, are backed by bills of exchange, pledges, and other securities, which means that the bank could, upon expiry of the payment period, initiate enforcement proceedings under the ESA.

However, in the current climate banks are parched of liquidity and the chances of successful collection of receivables in enforcement proceedings is dubious, at best. Consequently, it is to be expected that the banks, rather pursing mass enforcements of NPLs, will instead turn to selling their claims to registered factoring and forfeiting businesses to generate instant liquidity, leaving the quagmire of enforcing those claims under the ESA to the buyers.


Author: Predrag Spasić