Debt Collection in Japan: A Guide for Foreign Companies

 

Debt collection in Japan can be a complex process, especially for foreign companies unfamiliar with the country’s legal and business environment. The economic downturn has led to an increase in corporate bankruptcies, making it more important than ever to ensure your invoices are paid on time and to have a clear strategy for recovering unpaid debts.

 

Disclaimer: This article provides general information on debt collection in Japan and does not constitute legal or professional advice. We are not qualified legal professionals, and the information presented here may not be applicable to all situations. If you require specific guidance or legal support regarding debt collection in Japan, we strongly recommend consulting a qualified lawyer who specializes in Japanese business law.

 

ENSURING YOUR INVOICE IS PAID

To minimize the risk of non-payment, it is essential to take proactive steps before entering into business agreements with Japanese companies.

 

1. CONDUCT A CREDIT CHECK

 

Before starting a new business relationship, conduct thorough credit checks on potential clients. You can use services from institutions like:

Teikoku Databank

Tokyo Shoko Research

 

These reports provide insights into a company's financial health, past payment behavior, and creditworthiness.

 

2. ESTABLISH CLEAR PAYMENT TERMS

 

Clearly define payment terms in contracts and invoices. This includes:

Due date for payment (e.g. 30 days from invoice date)

Late payment penalties (interest charges for overdue payments)

Deposit or upfront payment to mitigate risk

Installment payment options for high-value transactions

 

3. KEEP DETAILED RECORDS

 

Maintain thorough documentation of all transactions, including:

 

Signed contracts

Purchase orders

Delivery confirmations

Invoices with payment terms and

Email correspondence regarding payments

 

These records serve as evidence in case of disputes.

 

STEPS TO TAKE WHEN A CLIENT FAILS TO PAY

 

Despite precautions, some clients may fail to make payments on time. Here is a step-by-step approach to recovering overdue payments in Japan:

 

1. ISSUE A PAYMENT REMINDER

Send a polite email or call the client, as late payments may result from simple oversight.

Follow up with a formal written reminder if there is no response.

 

2. SEND A DEMAND LETTER (CONTENTS-CERTIFIED MAIL)

If the invoice remains unpaid, send a Naiyou Shomei (内容証明郵便), a certified mail with a legal impact.

This letter formally requests payment and serves as legal proof of your demand.

 

3. CONSIDER LEGAL ACTION

If reminders and demand letters fail, legal proceedings may be necessary:

 

SMALL CLAIMS COURT (SHOUGAKU SOSHO - 少額訴訟)
For claims under 600,000 JPY, small claims court offers a quick resolution, usually within one hearing.

PAYMENT ORDER (SHIHARAI TOKUSOKU - 支払督促)
This is a simplified court process where the court orders the debtor to pay the outstanding amount.
If the debtor does not object, the order becomes enforceable, allowing asset seizure.

CIVIL LAWSUIT (MINJI SOSHO - 民事訴訟)
For large sums, a full civil lawsuit may be required.
Engaging a Japanese law firm is advisable for effective legal representation.

 

HANDLING CLIENT BANKRUPTCY IN JAPAN

Japan’s struggling economy has led to an increase in corporate bankruptcies, making debt recovery more challenging. If your debtor declares bankruptcy, you should:

 

1. SUBMIT A PROOF OF CLAIM

If the debtor files for Bankruptcy (Hasan - 破産) or Civil Rehabilitation (Minji Saisei - 民事再生), creditors must file a claim with the court.

 

2. EVALUATE YOUR RECOVERY CHANCES

Secured creditors have a higher chance of recovering funds.

Unsecured creditors may receive little to no repayment.

In some cases, debts may be written off as bad debt losses for tax purposes.

 

WHEN TO SEEK PROFESSIONAL HELP

 

Consider hiring a professional debt collection agency or a legal expert if:

The debtor refuses to communicate or pay.

The amount is significant and justifies legal expenses.

You have multiple unpaid invoices from various clients.

Debt collection agencies (called "servicers" in Japan) are licensed under Japanese law and specialize in recovering overdue payments.

 

So what shall you do?

 

Foreign companies operating in Japan must take proactive measures to ensure timely payments. Credit checks, clear contract terms, and diligent record-keeping are crucial. If a client fails to pay, swift action—starting from reminders to legal proceedings—is necessary. With Japan’s economic struggles leading to increased bankruptcies, businesses must stay vigilant and seek professional assistance when needed.