For Lithuanian businesses that export goods or provide services to foreign customers, an unpaid invoice becomes a much more complicated issue when the debtor is registered in another country. The transportation sector faces this problem particularly often, as services are provided across different countries, the chain of clients can be long, and payments often depend on several different market participants. In such cases, even a debt that seems clear at first glance can turn into a complex cross-border debt collection case. Where should one file a claim—in a Lithuanian court or a foreign court? Which country’s law will apply? Will a court judgment issued in Lithuania actually be enforced abroad?
Kamilė Šemeklytė, an attorney at the AVOCAD law firm, says that in cases of international debt collection, one of the biggest mistakes is to start by drafting a complaint without first answering a far more practical question: where are the debtor’s assets, and will it actually be possible to collect the debt from them? “You may win the case, but what matters to a business is not the court’s decision itself, but the money in the bank account. Therefore, before initiating proceedings, it’s worth assessing the debtor’s financial situation, checking whether insolvency proceedings have been initiated against them, and determining where their bank accounts, real estate, or other registrable assets are located. Sometimes such an assessment fundamentally changes the entire debt collection strategy,” says K. Šemeklytė.
Egidijus Langys, managing partner at AVOCAD and an attorney who specializes in legal issues related to carriers, notes that this problem is particularly acute in the transportation sector due to the very structure of the business. “The carrier may be in Lithuania, the client in Germany, the freight forwarder in the Netherlands, and the consignee in yet another country. When an unpaid invoice arises, it quickly becomes clear that simply knowing who owes the money isn’t enough. You need to understand where that debt can actually be collected and whether the process itself is economically viable,” says E. Langys.
The first document worth looking at is the contract
According to lawyers, the international debt collection process actually begins as soon as a contract is signed with a foreign partner.
Two conditions are particularly important here: which country’s law applies to the contract, and which country’s court will resolve the dispute.
Under EU law, the parties may generally choose the law applicable to their contract. If no such choice is made, the applicable law is determined in accordance with the rules set forth in the EU’s “Rome I” Regulation. For example, the law of the seller’s country generally applies to contracts for the sale of goods, while the law of the service provider’s country generally applies to service contracts, although exceptions are possible in specific situations.
Jurisdiction is no less important. The general rule in the EU is that a case is brought in the country where the defendant is located; however, in contractual relationships, the place where the contractual obligation was to be performed may also be relevant. In addition, the parties to a business contract may agree in advance on the jurisdiction of the courts of a specific country.
“A single sentence in a contract can sometimes mean thousands of euros in future litigation costs. If a Lithuanian company agrees in a contract that all disputes will be heard in a court in another country, it will have to factor in the costs of local attorneys, translations, and litigation should a debt of 10,000–20,000 euros arise. Therefore, jurisdiction clauses should not be treated as a mere technical detail at the end of a contract,” emphasizes K. Šemeklytė.
Langys adds that in international business relationships, companies often pay too little attention to the terms of a contract as long as the relationship is going smoothly. “As long as invoices are paid on time, provisions regarding jurisdiction or applicable law seem like a mere formality. However, when a dispute arises, it becomes clear that these provisions can determine the duration of the proceedings, their cost, and even whether it is worth litigating over a specific debt at all,” he says.
When the debtor does not dispute the debt, the process may be simpler
If the debtor is located in another EU country and does not substantially dispute the debt, one option is the European Payment Order procedure.
It is designed for cross-border uncontested civil and commercial monetary claims. The process is carried out using standardized forms, and if the debtor does not file an objection, the European payment order becomes enforceable in another EU country without the need for a separate trial.
For smaller claims, the European Small Claims Procedure—designed for cross-border claims not exceeding 5,000 euros—may also be considered.
However, according to K. Šemeklytė, the amount of the debt alone should not automatically determine the choice of legal process.
“First, you need to determine whether the debtor is disputing the debt. If there are claims regarding the quality of goods, the performance of work, termination of the contract, or set-off, a formally simpler procedure does not necessarily mean that the dispute will remain straightforward,” notes an AVOCAD attorney.
Sometimes it’s more important to “freeze” the funds in a timely manner than to wait for a court ruling
Another EU legal instrument that may be particularly relevant to businesses is the European Account Freeze Order.
It allows a court in one EU country to freeze a debtor’s funds in a bank account in another EU country in a cross-border case. In certain cases, this can be done without first notifying the debtor.
“If there are signs that a debtor is beginning to transfer assets, shut down operations, or evade creditors, time becomes one of the most important factors. A favorable ruling obtained a year later may be of little value if, by that time, there are no longer any assets against which to enforce the judgment,” says K. Šemeklytė.
Langys emphasizes that in business, procrastination often costs more than the legal process itself. “In practice, we see situations where a creditor waits half a year or a year, hoping that the partner will eventually pay, sending reminders and negotiating, but in the meantime, the debtor’s financial situation deteriorates. Therefore, one of the most important decisions is to recognize in a timely manner when negotiations still make sense and when it is time to move on to legal measures,” says E. Langys.
A Lithuanian court ruling does not mean a new case from scratch in the EU
Businesses often fear that, even if they obtain a favorable ruling from a Lithuanian court, they will have to start the entire process over again in the debtor’s country. This is generally not the case within the EU.
Under the “Brussels I bis” Regulation, judgments in civil and commercial matters rendered in one EU Member State may be enforced in another Member State without a prior separate exequatur procedure. A creditor may apply to the enforcement authorities of the country where the debtor’s assets are located by submitting the court judgment and the required documents. “A creditor may have a perfectly valid claim in Lithuania, but if all of the debtor’s assets are located in Germany, France, or Spain, enforcement proceedings will ultimately have to be carried out there. For this reason, an analysis of local procedures and the debtor’s assets should be conducted even before choosing a course of litigation,” says K. Šemeklytė.
According to Langys, it is precisely at this stage that it is important for businesses not to confuse two things: a won case and the actual recovery of the debt. “A court ruling is very important, but from a business perspective, it does not mark the end of the process. The real result is achieved only when the money is returned to the creditor. Therefore, from day one, it’s worth thinking not only about how to prove the debt, but also about how the judgment will be enforced later,” notes E. Langys.
The debt may also increase due to interest and collection costs
Businesses should also keep in mind that the claim is not necessarily limited to the amount of the unpaid invoice.
EU rules on late payments in commercial transactions provide for the right to claim interest on late payments under certain conditions. In addition, the creditor is entitled to compensation of at least 40 euros for collection costs, and reasonable additional expenses may also be reimbursed.“In practice, it is worth calculating the total claim precisely—the principal debt, interest, contractual penalties (if applicable), and any potential debt collection costs. This is also important during negotiations—it must be clear to the debtor that delay does not reduce their obligation,” says K. Šemeklytė.
Outside the EU – each country must be assessed individually
When the debtor is located outside the European Union, there is no single, universal mechanism. It is necessary to review international treaties, the laws of the specific country, the jurisdiction or arbitration provisions set forth in the agreement between the parties, and the rules governing the recognition of foreign court judgments.
According to E. Langis, in such cases it is particularly important for businesses to assess the costs of the upcoming process in advance. “In international debt collection, you always have to do the math. Sometimes a claim is entirely legally justified, but the costs of collecting it may be disproportionate to the debt itself. Therefore, a professional assessment begins not with the question of whether we can file a lawsuit, but with the question of which approach will yield the best economic outcome for the business,” says E. Langys.
According to Šemeklytė, the most important principle in business is not to procrastinate. "An international debt is not, in and of itself, a bad debt. The European Union has established a number of effective instruments for creditors. However, the longer you wait, the greater the risk that the debtor’s financial situation will change, insolvency proceedings will begin, or there will be no assets left. Therefore, upon receiving a clear signal that a foreign partner does not intend to pay, it is better not to send a fifth reminder but to evaluate a specific debt collection strategy,” concludes K. Šemeklytė.