Tiếng ViệtIn today’s increasingly competitive and high-risk business environment, cash flow management plays a critical role in the survival of every enterprise. A signed contract may seem like a positive step toward cooperation, but if the counterparty delays payment or fails to fulfill their obligations, the consequences can be severe—from cash flow imbalances and business disruption to the inability to meet other financial commitments.
Late payments are not only a financial concern but also a legal risk that businesses must recognize and address early. Many companies, especially small and medium-sized enterprises (SMEs), are hesitant or lack the legal knowledge needed to handle payment-related contract disputes effectively.
This article by Lexconsult & Partners provides a detailed guide on the right to initiate legal action, debt recovery procedures, and key considerations to minimize legal risks. With practical experience in resolving commercial contract disputes, our legal team believes the following insights will serve as a valuable guide for businesses in contract negotiation, execution, and dispute resolution.
1. Seller’s rights when the buyer delays payment
According to Vietnam’s 2005 Commercial law, when the buyer fails to make payment as agreed, the seller is entitled to:
– Demand full or partial payment of the outstanding obligation (Article 50);
– Suspend contract performance or refuse delivery if the buyer breaches payment obligations (Article 51)
– Claim compensation for actual damages caused by the late payment;
– File a lawsuit or arbitration claim to recover the debt
Note: These rights are only enforceable if the contract is clearly drafted and supported by evidence of the breach.
2. Lawful options for debt collection: Negotiation, Mediation- Arbitration, or Court
Depending on the circumstances and contractual provisions, the following dispute resolution methods may apply:
2.1 Negotiation and mediation
– A flexible and cost-effective approach if the buyer is cooperative and financially capable
– Should be documented through a written settlement agreement or payment plan as legal evidence
2.2 Commercial arbitration
– Applicable if the contract contains an arbitration clause
– Offers quicker, confidential resolution but often involves higher costs than court proceedings
– Arbitral awards are final and binding, with no appeal allowed
2.3 Court proceedings
– The most common route if no arbitration clause exists
– Allows the plaintiff to request interim relief (e.g., asset freezing, account blocking) to secure enforcement
3. Lawsuit process – Required documents and statute of limitations
3.1 Required documents
To initiate a lawsuit, the following documents are generally needed:
– Standard Statement of Claim
– Signed sales or service contract
– VAT invoices, delivery records, and warehouse dispatch notes
– Written demands for payment (letters, emails, messages)
– Any proof showing the buyer’s failure to pay
3.2 Statute of limitations
According to Article 319 of the Law on Commerce 2005:
Article 319. Statute of limitations for initiating lawsuits
The statute of limitations for lawsuits applicable to commercial disputes shall be two years from the moment when the legitimate rights and interests are infringed upon, except for cases specified at Point f, Clause 1, Article 237 of this Law.
Thus, for most commercial disputes, the legal time limit for filing a lawsuit is 2 years from the date the right or interest was violated.
Key points for Businesses:
– In late payment disputes, the violation date is often the due date stated in the contract, invoice, or payment request that the buyer failed to fulfill.
– If no payment deadline is specified in the contract, businesses may rely on transaction practices, payment history, or the date the payment obligation arose to determine the start of the limitation period.
If the 2-year statute of limitations is exceeded, the court or arbitration body may reject the lawsuit unless:
– There is a valid reason that interrupts or suspends the limitation period (e.g., force majeure, fraud, etc.);
– The parties have agreed on a different limitation period in the contract, provided it does not violate the law;
– The case falls under an exception stated in Point e, Clause 1, Article 237 (e.g., disputes related to bills of lading in maritime transport have specific time limits).
Advice for businesses:
– Always keep proper documentation to prove the timing of the payment default (e.g., debt reminders, reconciled emails).
– Do not delay filing a lawsuit after reminders have been ignored.
– Consult a commercial contract lawyer to assess limitation periods and avoid dismissal.
4. Contract drafting tips to prevent payment disputes
– Clearly specify payment terms (deadlines, methods, recipient account);
– Include penalties for breaches, late interest, and applicable remedies;
– Add a clause on dispute resolution (Arbitration or Court);
– Maintain complete records: delivery notes, invoices, email communications;
– Have contracts reviewed or drafted with legal counsel specializing in commercial transactions.
5. Frequently asked questions about late payment disputes
If the buyer delays payment multiple times but keeps promising to pay, should we file a lawsuit?
→ Yes. Repeated promises without actual payment may constitute a contractual breach. The seller should issue a formal payment request and consider filing a lawsuit along with requesting interim measures (e.g., asset freezing) to prevent asset dissipation.
Can a higher interest rate be applied than the bank’s rate?
→ Only if the contract includes a legally valid clause specifying a higher late payment interest. Otherwise, courts typically apply the rate prescribed in the Civil Code or average rates from commercial banks.
Can the buyer be penalized and also required to pay damages?
→ Yes, if both penalties and compensation clauses are included in the contract. These are separate remedies under the Law on Commerce. Actual losses must be proven to claim damages.
If goods were delivered without a VAT invoice, can we still sue for payment?
→ Yes, provided there are delivery records, warehouse notes, email exchanges, or payment proof to show that the transaction occurred and payment is due.
Does the legal representative have to sign the lawsuit petition?
→ Not necessarily. The business may authorize a lawyer or other individual to file the claim and represent them in court. The power of attorney must comply with the Civil Procedure code.
What if the buyer refuses to comply after losing the case?
→ The seller should submit a request to the Civil Judgment Enforcement Agency in the locality where the buyer resides or holds assets. If the buyer refuses to comply, enforcement measures like account freezing or asset seizure may be applied. In some cases, criminal liability may follow.
What interim measures can businesses request to ensure payment enforcement?
→ Businesses may ask the court to freeze bank accounts, seize assets, suspend asset transfers, or apply any other appropriate measure under Article 114 of the Civil Procedure Code.
If the buyer claims technical or product defects to delay payment, what should we do?
→ Review the contract, delivery records, and technical reports to prove proper performance. If the buyer cannot provide solid evidence, the delay may still constitute a breach.
If the contract lacks a specific payment deadline, can we still sue for debt?
→ Yes, but the case may be more challenging. Businesses should rely on past practices, confirmation emails, or other documents to prove when payment was due.
Which is more effective—Arbitration or Court?
→ It depends. Arbitration is faster and more private but lacks enforcement powers. Courts may involve more procedures but offer stronger enforcement through legal measures.
Late payment in commercial contracts is an undesirable yet very common situation in practice. For businesses, it is not only essential to promptly address the financial consequences but also to proactively establish a robust internal legal framework to prevent and manage risks from the outset. From negotiation and contract drafting to dispute resolution, having the support of a lawyer specializing in commercial contracts can help businesses make sound decisions, protect their interests to the fullest, and avoid unnecessary losses.
If your business is facing challenges with debt recovery or needs legal advice on handling payment disputes, do not hesitate to contact Lexconsult & Partners Law Firm. With extensive experience advising hundreds of domestic and international enterprises, we are ready to assist your business in drafting solid contracts, resolving disputes effectively, and fostering sustainable business operations.
