Collecting a debt with no enforcement instrument: from demand letter to payment order to claim

A business is owed money that has been outstanding for months and the client keeps postponing. The business holds invoices and correspondence and nothing attested. The question put is whether to file a claim. The answer is that there is a shorter route between the demand letter and the claim that is routinely overlooked, and that the route depends on the kind of paper in your hand rather than on the size of the amount.

This article ranks the collection routes from the least costly to the most, and sets out what each one requires.

The distinction that governs everything: enforcement instrument or not

A creditor holding an enforcement instrument does not file a claim. He goes directly to the enforcement court. A creditor holding an ordinary document needs a judgment or an order first.

The Enforcement Law, issued by Royal Decree No. (M/237) dated 3/11/1447H, confines enforcement instruments in its Article 7 to a closed list that includes final judgments, orders and decisions, arbitral awards, “settlement agreements and conciliation instruments attested in accordance with the Notarization Law, or issued by bodies statutorily authorised to do so”, “bills of exchange and promissory notes where registered on the national electronic platforms”, “cheques”, and “contracts and acknowledgements attested in accordance with the Notarization Law”.

That list reads two ways. For the creditor who is already owed: examine your paper before you plan anything. For the next transaction: you can turn a financial relationship into an enforcement instrument before any dispute arises. An attested acknowledgement of debt, or a promissory note registered on the national platform, is not a theoretical precaution. It is the difference between litigation that may run long and starting directly at the enforcement stage.

Article 11 of the Law sets a time limit: “an enforcement application shall not be accepted under an enforcement instrument where more than (ten) years have passed since its due date.”

Stage one: a demand letter that is useful later

Most demand letters are written to relieve the writer rather than to be used afterwards. A useful letter is written with the eventual case file in view:

• The principal, how it arose and when, rather than a bare figure.
• An attached statement of account showing what was owed, what was paid and what remains.
• A payment deadline with a specific date.
• A request for a written reply, because the debtor’s reply may be the most useful document in the file.
• Delivery by a means that proves receipt, not a message that can be deleted.

Asking for a reply is not a courtesy. An acknowledgement by the debtor — even partial, even implicit in a request to reschedule — changes the position of the file entirely. The Law of Evidence, issued by Royal Decree No. (M/43) dated 26/5/1443H, defines in Article 51 the “commencement of proof in writing” as “any writing issuing from the opposing party which is such as to make the existence of the alleged transaction probable”, and allows that, where proof in writing is required, it may be replaced by “a judicial acknowledgement, a decisive oath, or a commencement of proof in writing supported by another means of proof”.

This has a direct practical consequence. Article 66 of the Law of Evidence provides that “every transaction exceeding (one hundred thousand riyals or its equivalent) in value, or of undetermined value, must be proved in writing”, and witness testimony is not admitted to prove its existence or extinction. Article 68 then permits proof by testimony in matters that required writing “where there is a commencement of proof in writing”. A message from the debtor mentioning the debt may be the key.

Stage two: the statutory notice before registration

Before going to the commercial court there is a mandatory provision to check. Article 19 of the Law of Commercial Courts, issued by Royal Decree No. (M/93) dated 15/8/1441H, provides that “in the claims specified by the Regulation, the claimant shall notify the defendant in writing to pay the right claimed at least (fifteen) days before filing the claim”.

The same article allows, before registration and under the supervision of the court, “conciliation and mediation procedures”, “the exchange of documents and memoranda” and “the holding of a meeting to define the claims, the pleas and the evidence”. This route deserves a try before any claim where the debtor admits the principal and disputes the amount.

And for anyone who reaches a settlement there is an important outcome. Article 29 provides that where the parties agree to a settlement before the circuit it is recorded in the minutes of the hearing, and “the approved minutes of the hearing shall constitute an enforcement instrument, and the claim shall thereby be extinguished”. A settlement before the circuit produces an enforcement instrument, not merely an agreement.

Stage three: a payment order instead of a claim

This is the overlooked route. Chapter Nine of the Law of Commercial Courts opens an exceptional path for creditors. Article 67: “by way of exception to the general rules on commencing claims, a creditor may apply to the court for an order to pay a debt on the following conditions: that his right is established in writing; that the debt is due for performance; that the debt is of a determined amount if it is money, or a movable determined by its type and quantity, or specifically identified in a manner excluding uncertainty.”

There is a prior step that cannot be skipped. Article 68: “the creditor must notify the debtor in writing of the demand for payment at least (five) days before applying to the court for a payment order, and the notice must state the intended date of the application to the court.”

The notice here is not a general demand letter. It is a notice stating the intended date of the application. A creditor who omits that particular has omitted a condition of the route.

Article 69 sets out what must accompany the application: “the facts of the application, its bases, the debtor’s full name and address” and “proof that the notice demanding payment of the debt was given”.

Article 70 then provides: “the circuit shall decide the application by an order issued within (ten) days from the date of its registration.” If the circuit rejects the application, “its decision to reject shall be final, without prejudice to the creditor’s right to file a claim under the applicable rules”. Rejection does not close the door; it returns the creditor to the ordinary claim.

A payment order carries an enforcement advantage. Article 65 makes judgments and orders subject to expedited enforcement in cases that include “payment orders under the provisions of the Law”.

The debtor has his own route. Article 71 allows him to complain against the payment order “within (fifteen) days from the date he is notified”, the complainant being treated as a claimant, and allows the court by reasoned decision to suspend the expedited enforcement of the payment order “where that is requested of it and enforcement is feared to cause serious harm”.

Stage four: the claim

Where a condition for a payment order is not met — the right is not established in writing, or the amount is not determined — the route is a claim. What to check before filing:

• The hearing bar: Article 24 of the Law of Commercial Courts: “claims within the jurisdiction of the court shall not be heard after the lapse of (five) years from the date the right claimed arose, unless the defendant acknowledges the right or the claimant presents an excuse that the court accepts.”
• Jurisdiction: Article 16 gives the commercial court jurisdiction over “claims brought against a merchant in disputes over commercial contracts, where the value of the principal claim exceeds one hundred thousand riyals”, alongside disputes arising between merchants by reason of their principal or ancillary commercial activities.
• Appealability: Article 78 excludes from appealable judgments “minor claims not exceeding fifty thousand riyals, as determined by the Council”.

On proof, a written contract is not a requirement. Article 5 of the Law of Evidence provides that “no particular form is required to prove an obligation, unless a special provision or an agreement between the litigants provides otherwise”. Article 36 of the Law of Evidence gives each party in a commercial case the right to request relevant documents held by the other, identified individually or by type, and if the party refuses, “the court may treat the refusal as a presumption”.

A hypothetical that shows the difference

A hypothetical: a business supplied materials against a purchase order, an invoice and a delivery note signed at the client’s warehouse, the amount is fixed and the due date has passed. Here the right is established in writing, determined in amount and due for performance, so the route is a payment order after a notice stating the intended date of the application.

One change alters the route. If the outstanding balance were the subject of an accounting dispute between the parties, the debt would not be “of a determined amount”, and the file would return to an ordinary claim.

What to prepare in a collection file

• A signed statement of account showing what was owed, what was paid and what remains, with dates.
• The documents establishing how the debt arose: purchase order, contract where one exists, delivery note, invoice.
• Proof of an earlier demand and of its delivery.
• Every piece of correspondence in which the debtor mentions the debt or asks for a postponement or a rescheduling.
• The date the right arose and the date it fell due.
• A classification of the paper: is it an enforcement instrument under Article 7 of the Enforcement Law or not?

In short

Collection is not a single choice between a letter and a claim. A holder of an enforcement instrument starts at enforcement; a creditor whose right is established in writing, determined in amount and due for performance has the payment order after five days’ notice; and anyone who meets neither test files a claim after fifteen days’ notice.

The most useful work in this area is done before any dispute: building the financial relationship on a document that carries enforceability. Attest the acknowledgement and register the note, and you have cut out an entire stage.