Debt Collection in Construction: Particular Challenges and Solutions
The construction industry is marked by long payment chains and disputes over defects and extra work. Read how Danish trade and construction businesses secure payment and handle late payers.
Why construction is different
Trade and construction businesses often have large amounts outstanding for long periods. A typical project involves a client, a main contractor, subcontractors and suppliers, and if one link delays payment, the whole chain is affected. At the same time, disagreements about defects, extra work and deadlines are common, and a disputed bill cannot simply be sent to debt collection.
Effective recovery in construction is therefore largely about prevention: good agreements, security and documentation.
Typical causes of payment problems
- The client or main contractor runs into financial difficulty or goes bankrupt in the middle of the project
- Disagreement about the quality of the work or about defects
- Disputes about extra work that was not agreed in writing
- Unclear agreements about when and how invoices are issued
The legal framework
Many professional construction contracts in Denmark are based on AB 18 (the General Conditions for Works and Supplies in Building and Construction). AB 18 contains rules on, among other things, payment as the work progresses, security (from both the contractor and the client), handover and defects. Disputes under AB 18 are as a rule decided by the Danish Building and Construction Arbitration Board (Voldgiftsnævnet for byggeri og anlæg). For contracts with private consumers there are the standard terms AB-Forbruger.
In addition to the contract, the general rules of the Debt Collection Act and the Interest Act apply: before a case is sent to debt collection, the debtor must have received a letter of demand with a deadline of at least 10 days (section 10 of the Debt Collection Act), and reminder fees may be at most DKK 100 per reminder for no more than 3 reminders at least 10 days apart (section 9 b of the Interest Act). Towards business customers you can also claim fixed compensation of DKK 310 for late payment (section 9 a).
Expert tip: Require security from the client
Danish law does not automatically give tradespeople or subcontractors a lien on the property they have worked on. Your best protection is therefore agreed security, for example a bank guarantee from the client or main contractor, which AB 18 allows you to require. Remember too that retention of title normally does not protect you once materials have been built into the property.
Prevent rather than recover
Checklist before you sign
- Check the counterparty in the CVR register and its latest annual report
- Consider a credit report for larger jobs
- Agree on-account payments as the work progresses instead of one large final invoice
- Use written agreements, ideally based on AB 18 or AB-Forbruger
- Agree security on larger projects
- Get extra work confirmed in writing before it is carried out
A customer who will not accept on-account payments or security on a larger project is a warning sign in itself.
How to handle late payment
When payment does not arrive, act quickly and systematically.
A typical reminder procedure
- Shortly after the due date: a friendly reminder; check whether there is a disagreement about the invoice
- First and possibly second reminder: with a reminder fee of at most DKK 100 and at least 10 days apart
- Debt collection notice: a letter of demand with a deadline of at least 10 days and a warning that the case will go to debt collection with further costs
- Then: hand the case over to a debt collection agency or a lawyer
If the customer objects to the work, you must deal with the objection. A disputed claim typically has to be decided by arbitration or the courts before it can be enforced.
Watch the limitation period
Most claims become time-barred after 3 years under the Danish Limitation Act (forældelsesloven). It is important to know that ordinary reminders and debt collection notices do not interrupt the limitation period. The period is interrupted if the debtor acknowledges the debt, for example by paying part of it or acknowledging it in writing, or if you take legal steps, such as a payment order, a lawsuit or arbitration. So do not let old claims sit.
Expert tip: Always hold a handover inspection
AB 18 contains rules on handover and the handover inspection (afleveringsforretning). Make a written handover record noting any defects, signed by the client or main contractor. It is decisive evidence if there is later disagreement about whether the work was done correctly.
When the debtor goes bankrupt
If the client or main contractor goes bankrupt, you can no longer recover the claim directly. Instead you must lodge your claim with the trustee before the deadline. If you have been given security, you can claim against the guarantor instead: another reason to agree security from the start.
Professional help
A debt collection agency or lawyer with construction experience can take over recovery and assess whether the claim should be pursued by payment order, lawsuit or arbitration. Choose a partner authorised by the Danish National Police (or a lawyer), and clarify the price in advance.
Your next steps
- Review your standard agreements with a focus on payment and security
- Introduce a fixed reminder procedure that complies with the Debt Collection Act and the Interest Act
- Document extra work and handover in writing
- Keep an eye on the limitation period for old claims
Through InkassoHurtig you can get no-obligation quotes from police-authorised debt collection agencies and lawyers. This content is general information and not legal advice.