Collecting in Italy
Collecting in Italy is highly complex. This shouldn’t put you off looking for opportunities in Italy, but you have to be aware of the complexities of recovering money should things not go as planned.
The payment behaviour of domestic companies in Italy can be poor when compared to other countries, and the average days sales outstanding is excessive, even though the regulations on late payments are more constraining, than the applicable EU rules. With likely procedural delays and costs being high, added to the fact that simply enforcing court decisions may prove to be a real challenge, starting a legal action without first establishing a pre-legal collection strategy, is considered unreasonable.
When the debtor is insolvent, debt renegotiation mechanisms have been put into place but to be frank, they remain mostly unused in practice. Liquidation (bankruptcy) therefore remains the default route, but leaves limited opportunities for unsecured creditors to recover their debt. It is very important to consider how to protect yourself when looking for growth opportunities in Italy.
The Regulatory Environment
Italy has a Civil Law system where the rules are codified and bind the courts. By contrast with common law countries, the case law therefore only has a limited impact on the courts. Business relations are regulated under the Civil Code (Codice Civile), while litigation proceedings are governed by the Code of Civil Procedure (Codice di procedura Civile). All business claims fall under the jurisdiction of ordinary courts (Tribunale) sometimes organised in specialised divisions depending on their size. Appeal courts as well as a Supreme Court of Cassation also exist.
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Business claims must generally be brought to court within ten years (‘prescrizione’ under Article 2946 of the Civil Code) but various rules apply. However the limitation period can be interrupted by sending a dunning letter by registered mail. In this case the limitation period would restart from the receipt of the dunning letter. Claims relating to faulty goods must be brought within one year starting from the delivery date, but within eight days from the discovery.
How long could legal action take?
Undisputed claims may be settled in four months but the timescale to obtain an enforceable court order would depend on the court, the region and the complexity of the case. Overall, disputed legal proceedings could take three years on average.
As a result, legal action might not always be worthwhile and priority should be given to pre-legal collection efforts. Enforcement may also last for years as it may depend on auction delays, and is also very expensive. Legal action in debt collection is the same for Italian and foreign creditors, so the courts do not require more time to decide on disputes filed by foreign companies.
Read our full report to better understand the nature of collecting payments in Italy.
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