Japan collection profile



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Complexity of collecting debt:

Notable High Very High Severe

Executive summary

  • The payment culture in japan is excellent with only  a minority of invoices remaining unpaid thanks to strong cultural particularities.  However, excessive DSO and significant payment disparitites may be witnessed from one sector to another.​
  • Although domestic courts tend to be fairly efficient in delivering timely decisions tribunals are time-consuming, expensive and complex. Therefore, conducting well-orchestrated pre-legal collection actions is essential.
  • Similarly, collecting debt from insolvent debtors is overall a challenging exercise and, even though insolvency proceedings could yield 'some' dividends, these would spread over years and generate significant costs.
General Information GENERAL INFORMATION arrow-transparent
Collection Practices COLLECTION PRACTICES arrow-transparent
Court Proceedings Court PROCEEDINGS arrow-transparent
Insolvency Proceedings INSOLVENCY PROCEEDINGS arrow-transparent
General Information 


Days Sales Outstanding (DSO)

The payment culture in Japan is overall excellent and only a minority of invoices remain unpaid thanks to strong cultural particularities, not to mention the fact that a debtor failing to pay twice over six months may be banned from the banking system. Having said this, although payments ought to take place within 30 days on average, terms may extend to 60 days and whilst there is a variance in DSO from one sector to another, the average was 69 days in 2015. In practice, only 45% of transactions are paid according to the terms negotiated by the parties and delays of up to 10 days may be witnessed.


Late payment interest

The law allows charging interest on late payment to the debtor as the latter is deemed responsible for such a failure to abide by its contractual obligations (Civil Code, Book III Claims, Article 404, 412, 419). Thus, the Commercial Code allows applying a 6% legal interest rate to a claim arising from "commercial transactions between companies or between companies and individuals". In fact, late payment interest may even be included into the principal if payment is still in arrears after one year provided that a notice to pay has been sent to the debtor (Civil Code Article 405).

Similarly, the law allows obtaining compensation for the damage arising as a result of late payment, however it is necessary for the contract to include a provision as to which compensation ought to be paid, and how (Article 412 of the Civil Code).

collection practice 


Orchestrated negotiation first

Negotiation and pre-legal collection efforts always ought to be considered in the first place because conducting legal action in Japan is complex, and it is essential to be aware of the debtor’s activity and solvency status: if the company is not in business anymore or if insolvency proceedings have been initiated, it generally becomes impossible to enforce a debt (see below). It must be emphasized that there are no specific procedures for the collection of debts in Japan. Therefore, although domestic courts tend to be fairly efficient in delivering timely decisions, tribunal are often unavoidable, time-consuming and expensive (all documents must be translated in Japanese). In such circumstances, it is essential to consider the elements of proof available before considering initiating legal action.

Court Proceeding 


Japan has a Civil Law system in which the courts are not bound by precedents but nonetheless tend to take major decisions of the Supreme Court as guidelines. Justice is rendered through a multitude of Summary Courts (438 in total) at the local level, fifty District Courts (Chiho Saibansho), eight High Courts (Fukuoka, Hiroshima, Osaka, Nagoya, Sapporo, Sendai, Takamatsu, Tokyo) acting as Appellate Courts, and a Supreme Court acting in last resort. Claims above JPY 1,4 million and litigation involving real properties must be brought before District Courts. District Courts furthermore have jurisdiction over disputes over design rights, trademark rights, but the Tokyo and Osaka District Courts are given the exclusive jurisdiction over disputes arising from, patent rights, utility model rights, etc.

The collection process often starts with the sending of a registered Demand Letter (Naiyo Shomei) to the debtor in order to request payment of the principal and interest. When the debt is certain and undisputed, a fast-track procedure aiming at obtaining a Demand for Payment (Tokusoku Tetsuzuki) may be initiated. Court clerks usually render a Payment Injunction (Shiharai Meirei) within a week (under the former procedure, Summary Courts used to render Orders within 3 to 6 months). Any contestation by the debtor formulated within 2 weeks however leads to bringing the claim before courts through ordinary legal action. The parties are bound by no obligation to cooperate prior to the ordinary judicial process and, although the court may allow a party to request that the other party (or a third party) provides documents in its possession, there are no penalties for non-compliance. When the debt does not exceed JPY 300,000 (about EUR 2,100), a Small Claims procedure may also be initiated before the Summary Courts, which shall render a decision on the day set for oral argument, otherwise the procedure would also lead to ordinary litigation. Ordinary legal action would usually commence when amicable collection has failed. The creditor would file a claim (sojo) with the District Court which would then serve the defendant with a summons to appear. The court has authority to decide on delays, but failure of the debtor to bring a defence is considered as an approval of the facts of the claim. Hearings are then organized in order to examine evidence and hear third-party experts. In practice, the courts furthermore tend to provide opportunities for negotiations and the parties often reach a compromise. Otherwise, the courts may award remedies in the form of a declaratory judgment (kakunin hanketsu), of specific performance (kyufu hanketsu), of damages, etc. The court however has no authority to award punitive damages.

insolvency Proceeding 


Insolvency in Japan is both a matter of cash flows and balance sheet. In other words, a debtor would be deemed insolvent once unable to pay its debts as they fall due, but also when the business' assets fail to compensate for its liabilities. A debtor is also punished by having their bank transactions suspended after dishonouring bills.  Insolvency proceedings normally take place before the District Courts but various proceedings coexist. Whatever the proceedings, the court must decide on a time period (up to four months) during which the creditors may file their claims. In practice, collecting debt from insolvent debtors is most challenging: the dividend rate is on average less than 10 % of the claim amount under the bankruptcy proceedings and could reach 15 to 20 % of the amount of claim under the corporate rehabilitation proceedings.


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