Out-of-Court Settlements for Ukrainian Businesses Commercial Debt Collection

Out-of-court settlements offer a pragmatic and effective alternative to traditional litigation, providing numerous benefits for companies facing debt collection issues. This approach saves time, reduces legal costs, and helps preserve valuable business relationships. 

Read further as our expert explains the advantages of out-of-court settlements and how they can significantly impact commercial debt collection for Ukrainian enterprises.

Key Highlights

• By prioritising negotiation and mutual agreement over litigation, companies can resolve financial disputes more quickly and cost-effectively.
• Maintaining control over the implementation of settlement agreements, including the right to pursue legal action if necessary, further strengthens this method's effectiveness.
• Leveraging out-of-court settlements provides a balanced and strategic path to managing commercial debts, reinforcing operational resilience and long-term success for Ukrainian businesses.

Definition of Out-of-Court Settlement 

An out-of-court settlement in commercial debt collection resolves a debt dispute without formal legal proceedings. This process involves the debtor and creditor negotiating an agreement to settle the outstanding business debt, often with the assistance of a mediator or a commercial debt agency. The goal is to reach a mutually acceptable solution that satisfies both parties without court intervention.

One of the primary benefits of out-of-court settlements is the significant reduction in time compared to litigation. Court cases can be lengthy, often dragging on for months or even years, while out-of-court settlements can be reached relatively quickly. 

Another major advantage is cost savings. Litigation can be expensive, with legal fees, court costs, and other related expenses adding up. Out-of-court settlements typically involve lower legal costs and avoid the additional expenses of court proceedings. This makes the process more economical, especially for small and medium-sized enterprises.

Out-of-court settlements help preserve business relationships. Litigation can be adversarial and damaging, potentially leading to the breakdown of commercial relationships. In contrast, the negotiation process involved in out-of-court settlements encourages cooperation and communication, maintaining and even strengthening business partnerships.

Legal Basis of Out-of-Court Settlement 

The legal basis for out-of-court settlements in Ukrainian commercial debt collection can be established through mandatory or voluntary pre-trial dispute resolution processes. Many contracts include a mandatory pre-trial dispute resolution clause, requiring parties to attempt resolution through negotiation or mediation before legal action. 

Such mandatory processes are designed to save time and reduce the burden on the court system, encouraging businesses to settle disputes efficiently. 

On the other hand, voluntary pre-trial resolution is an option that parties can choose even if it is not stipulated in their contract. This approach allows businesses to seek amicable settlements through negotiation or mediation at their discretion. Voluntary pre-trial resolution is often pursued to maintain business relationships, as it promotes open communication and cooperation between the parties.

Contact Us to Return Your Business Debt in 30 Days

Third Parties Involved in the Out-of-Court Settlement Process

In the out-of-court settlement process for Ukrainian businesses, third parties such as commercial debt collectors and mediators specialise in recovering outstanding debts on behalf of creditors. Their responsibilities include contacting debtors, negotiating payment terms, and ensuring debts are repaid on time. 

Debt collection agencies: Involving B2B debt collection agencies offers several advantages, such as their expertise in debt recovery, which can lead to higher success rates, and their ability to handle negotiations impartially, which can preserve business relationships.

Mediators/conflict managers: Mediators, or conflict managers, are neutral third parties who assist in resolving disputes between creditors and debtors. They facilitate communication, help clarify issues, and guide the parties towards a mutually acceptable agreement. Mediators do not take sides or make decisions but rather help both parties understand each other's positions and explore possible solutions.

Contact Payfor for Professional Out-of-court Settlement Services 

Out-of-Court Settlement Stages

Below are the stages of out-of-court settlement that provide a structured approach to resolving financial disputes without the need for litigation. 

• Caseload analysis

For Ukrainian businesses, this stage in commercial debt collection begins with caseload analysis. This initial review involves gathering all relevant documentation and information related to the debt, such as contracts, invoices, and payment records. By thoroughly analysing the case, businesses can understand the scope of the debt and prepare for the next steps.

• Initial assessment of the debtor's solvency

The next stage is the initial assessment of the debtor's solvency. This involves identifying the debtor’s authorised decision-makers and evaluating their financial situation. Understanding the debtor’s ability to pay is crucial for determining realistic payment terms and conditions.

• Negotiations

Initiating negotiations requires strategic planning, including deciding the best approach to propose a settlement. Techniques for maintaining constructive communication during negotiations are essential, as they help address concerns and find common ground.

• Drafting and signing a payment plan or a settlement agreement

Once an agreement is reached, the next stage is drafting and signing a payment plan or settlement agreement. Key components of this document include the agreed payment schedule, amounts, and any conditions for compliance. Ensuring the clarity and enforceability of the terms is vital to preventing future disputes. 

The final step is formalising the agreement with signatures from both parties, making the settlement legally binding.

Control Over the Settlement Agreement Implementation

When a settlement agreement is reached, it is essential to include provisions that allow the creditor to monitor and enforce compliance with the payment schedule. Regular check-ins and progress reports from the debtor can be established to track the adherence to the agreement.

The agreement should clearly stipulate the consequences of non-compliance. Preserving the right to pursue legal action if the payment plan is not followed as agreed is a powerful deterrent against default. 

This clause ensures that the debtor understands the seriousness of the agreement and the potential legal repercussions of failing to meet their obligations.

Implementing a robust monitoring system can also involve third-party oversight, such as involving a financial mediator or an external auditor to verify payments. This added layer of scrutiny helps maintain transparency and accountability throughout the payment process.

Author: Giles Goodman, Founder CEO of Payfor Limited
Drawing from his solid experience in commercial debt collection, Giles
offers invaluable expertise in solving claims owed between companies worldwide. Through his writing,
Giles shares insights tailored to business owners, leveraging his wealth of experience to provide practical
guidance and support.

 LinkedIn