Portugal collection profile

Executive summary

• Payment terms and late payment are regulated in Portugal in accordance with applicable EU rules; however the standards put in place are amongst the softer in Europe. As a result, DSO remains excessive at around 80 days.
• The court process is a major complication when it comes to collecting debt and it seems advisable to first conduct negotiation "with teeth" with the support of collection specialists. When court is needed, Alternative Dispute Resolution methods and foreign courts (EU judgments will be fairly enforceable in Portugal) may be worth considering in order to avoid inefficient domestic courts.
• Despite reforms conducted in 2012 to increase company rescue possibilities, insolvency proceedings often lead to the liquidation of the company and it is rare for unsecured debtors to recover their debt.

 

GENERAL INFORMATION

Days Sales Outstanding (DSO)

The payment behavior of domestic companies remains weak partly due to a lack of banking support which restricts businesses‘ cash flow and transforms late payments into a cash management strategy. As a result, it is common for companies doing business in Portugal to agree on extended payment terms (66 days on average), and to receive payments around 80 days on average (2015 figures). Tight payment terms are common in order to plan for delays.​

Late payment interest

The Directive 2011/7/EU which stipulates that payments in the EU must be made within 60 days has been transposed into domestic law by Law Decree 62/2013 of 10th May 2013, two months after the implementation deadline originally imposed by the EU authorities. The law provides that payment in business-to-business transactions ought to occur within 60 days following the issuing date and it is therefore in line with the Directive; however it remains much more permissive than other EU Member States in which payment must occur within 30 days unless the parties agree otherwise. In practice, average payment terms in Portugal are 66 days but the parties may contractually agree on longer payment periods provided that arrangements are not grossly unfair to the creditor. Unless a contract stipulates otherwise, interests for late payment must be calculated on the basis of the European Central Bank's refinancing rate, increased by a minimum of 7 percentage points as published in the Official Journal (Diário da Republica). In practice, interest is essentially used as a negotiation tool.

Similarly, EU rules entitle creditors to charge a flat EUR 40 fee to cover their costs, but additional collection costs may be claimed to cover reasonable fees in excess of this sum (lawyers, recovery agencies, etc.) during legal proceedings.

 

COLLECTIONS PRACTICES

Orchestrated negotiation first

Having said this, the judicial administration in Portugal is heavy and case settlement is an overly time consuming exercise. As a result, amicable settlement opportunities must always be considered as an immediate alternative to lengthy and costly legal proceedings. As a matter of fact, having collection specialists may help negotiating payment instalments and would tend to prove extremely efficient insofar as domestic businesses fear the loss of commercial relations more than lawsuits. In all circumstances, legal dunning ought to start with a registered Demand Letter recalling the debtor its obligation to pay the principal together with late payment interests (as contractually agreed or taking a legal rate as a reference) within eight days. It would also seem wise to verify whether the debtor company is actually undergoing an insolvency procedure: the company would then be registered in the Trade Register (Registo Comercial) or within the Official Journal (Díario da Républica II serie).

 

COURT PROCEEDINGS

The legal system in Portugal is based on Civil Law, which means that the rules are codified whilst the courts' decisions only have a limited law-creating effect. County Courts have general competence to deal with claims in first instance (Tribunais Judiciais de Primeira Instância), but they are normally divided into specialized divisions to deal with specific commercial (Tribunais de Comércio), employment (Tribunais de Trabalho), maritime (Tribunais Marítimos) or criminal matters (Tribunais Criminais). Commercial Courts are available in several points of the country. In parallel, disputes involving public actors must be brought before the administrative courts. Appeal proceedings would then take place before one of the country's five Courts of Appeal (Lisbon, Oporto, Évora, Coimbra and Guimarães) and the Supreme Court of Justice (Lisbon).

When the debt is certain and undisputed (i.e. when a debt recognition title may be provided) Payment Order fast-track electronic proceedings (injunção) may be requested from the court. In addition, when the debtor company has assets in other EU Member States, a European Payment Order procedure facilitating the recovery of undisputed debts (under Regulation EC No 1896/2006) may furthermore be triggered. In this case, the demanding party may request the Council Court to issue an Order to Pay which will then be enforceable in all European Union countries (except Denmark) without exequatur proceedings. The Acção Declarativa is otherwise the main procedure when a claim is disputed and cannot be solved amicably. Once the claim is filed with the court and the debtor is notified, it may file a defence within 30 days. Failure to pay or to reply, however, would entitle the court to deliver a default judgment favorable to the creditor. When the claim has been dully proved and determined through written statements and an oral phase, the court may then order damages, as strictly requested by the demanding party (not more). When going legal, the parties must always be represented by a lawyer registered in the Portuguese Law Bar Association, and all relevant documents must be translated in Portuguese. Insofar as legal proceedings in Portugal are long, having arbitration or to a foreign forum is finally worth considering because both arbitral awards and EU decisions are fairly enforceable by domestic courts.

 

INSOLVENCY PROCEEDINGS

Insolvency in Portugal is a matter of cash flow and balance sheet alike. Portuguese Insolvency Law (Insolvency and Recovery Code, as approved by Decree Law No 53/2004 of March 2004) originally provided a single insolvency proceeding (processo de insolvência) aiming at obtaining payments through negotiation or liquidation, however reforms conducted in 2012 could be more efficient in supporting companies in financial difficulty.

> For more information on local collection practices, court proceedings and insolvency read the full Collections Profile