The ordinary period
The ordinary limitation period is ten years, but many debts have shorter periods.
VAT numbers · Bad debts
Unpaid invoices
A debt you never collect costs you twice: the money that does not arrive and the taxes already paid on that invoice. Recovery needs to be set up in good time, because the route changes depending on how long you wait.
01 · Prevention
What you decide before you invoice
Much of the recovery depends on the terms agreed at the start, not on the tools used later.
- A written contract, even a short one, sets out the service, the price and the payment terms.
- Payment terms in business transactions are governed by law, with maximum limits that can only be varied within certain bounds.
- Late payment interest runs automatically from the due date, with no need for a formal demand.
- The statutory late payment rate in business transactions is noticeably higher than the ordinary statutory rate.
- A fixed sum is also due as compensation for recovery costs.
- Security (a surety, a partial advance payment) costs little and changes everything.
Late payment interest in business transactions runs automatically from the day after the due date, without any reminder being needed. Many creditors never claim it, even though they are entitled to: over long delays the amounts are significant.
02 · The ladder
Tools for recovering unpaid invoices, from the lightest to the firmest
You proceed step by step: each stage costs more than the one before and only makes sense if the previous one has not worked.
| Tool | When it is used |
|---|---|
| Written reminder | First delay: it is often enough, and it keeps the relationship going |
| Formal demand (diffida) | Established delay: it puts the debtor formally in default and prepares the next step |
| Repayment plan | The debtor is in difficulty but solvent: a written extension is agreed |
| Payment order (decreto ingiuntivo) | The debt is certain, quantified and due, and there is written evidence |
| Enforcement | The order is final and the debtor does not pay |
| Proof of debt in insolvency | The debtor is subject to an insolvency procedure |
The payment order
It is more accessible than people think.
- You need written evidence of the debt: invoice, contract, correspondence
- For properly recorded invoices the procedure is simplified
- It is granted without a hearing of the other side, unless the debtor objects
- It can be requested as provisionally enforceable, in certain cases
03 · The tax credit
How to recover VAT you have already paid
On the invoice you issued you have already paid the IVA (Italian VAT). It can be recovered with a credit note, but only when strict conditions are met.
- Non-payment in itself is not enough: one of the conditions provided for is required.
- Insolvency procedures allow the adjustment from the date set by law for each procedure.
- Individual enforcement procedures count when they prove unsuccessful: a fruitless seizure, a report by the bailiff.
- Restructuring agreements and certified plans have their own rules.
- The credit note must be issued within the set time limits and sent through the Sistema di Interscambio (the Italian e-invoicing exchange system).
- The records proving the condition must be kept: they are what supports the recovery.
A seizure of movable goods that comes back empty is often the quickest way to meet the condition: it costs relatively little, produces a report documenting that it was unsuccessful, and opens the way to recovering the VAT even when the debt remains uncollectable.
04 · The loss
Deducting the bad debt loss
Besides VAT, income has to be considered: the uncollected invoice has already been counted in your taxable income.
- A bad debt loss is deductible when it is shown by certain and precise evidence.
- That evidence is automatically deemed to exist for small debts overdue for longer than a set period.
- It is also deemed to exist when the debtor is in an insolvency procedure, from the date provided for.
- The debt becoming time-barred is in itself certain and precise evidence.
- Writing the debt off in the accounts in line with proper accounting principles counts for the deduction.
- For professionals taxed on a cash basis the problem does not arise in the same way: a fee never collected was never taxed.
The difference between a business and a professional
It changes the whole reasoning.
- A business is taxed on an accruals basis: the uncollected invoice has already produced taxable income
- A professional is taxed on a cash basis: if nothing is collected, nothing has been taxed
- VAT, on the other hand, is due in both cases when the invoice is issued
- For a professional, recovery therefore concerns the VAT alone
05 · How long you have
Limitation periods and deadlines to meet
A debt does not last for ever: the limitation period extinguishes it, and the time limits vary by type.
Short limitation periods
Some categories of debt (professionals, traders for goods sold, periodic services) have shortened periods.
Interruption
A written demand received by the debtor interrupts the limitation period, which starts running again from the beginning.
Acknowledgement
An acknowledgement of the debt by the debtor, even an implicit one, interrupts the limitation period.
Suspension
It applies in specific cases provided for by law.
Our advice
A registered letter or PEC (certified email) putting the debtor in default every so often costs a few euros and keeps the debt alive.
06 · The sequence
How to set up the recovery
An orderly sequence avoids wasting time and losing the conditions needed for tax recovery.
- A written reminder as soon as the due date has passed: it keeps the relationship going and documents that you took action.
- A formal demand by PEC or registered letter after the second reminder: it puts the debtor in default and interrupts the limitation period.
- Assessing solvency before going further: company searches, protested bills, the state of the business.
- A written repayment plan, if the debtor is in difficulty but solvent.
- A payment order if the debt is documented and the debtor is solvent.
- Records of every step, which will be needed to recover the VAT and deduct the loss.
Before starting legal action it is always worth checking solvency: obtaining an enforceable title against a debtor with no assets produces a certain cost and an unlikely payment. In those cases it makes sense to focus on tax recovery, which is still a result.
Frequently asked
The questions that keep coming up
Can I issue a credit note because the client is not paying?
Not for non-payment alone. Precise conditions are required: an insolvency procedure against the debtor, or an individual enforcement procedure that proved unsuccessful.
Issuing the credit note without meeting a condition is one of the most frequent challenges: the VAT recovered is taxed again, with penalties.
How much does a payment order cost?
It depends on the value of the debt: court fee (contributo unificato), revenue stamps and the lawyer's fee. For debts documented by properly recorded invoices the procedure is relatively quick.
Costs are normally charged to the losing debtor, but you have to pay them up front. Before going ahead it always makes sense to check solvency: a title against someone who has nothing remains a cost.
Can I claim late payment interest?
Yes, and in business transactions it runs automatically from the day after the due date, with no need for a reminder or a formal demand.
The rate is noticeably higher than the ordinary statutory rate, and a fixed sum is also due as compensation for recovery costs. These are amounts that almost nobody claims.
I am a freelance professional: did the unpaid invoice make me pay tax?
For income tax purposes, no: self-employment income is taxed on a cash basis, so a fee never collected never counted towards your income.
VAT, however, yes: it is due when the invoice is issued, regardless of payment. For you, recovery therefore concerns the VAT alone, under the conditions set for the credit note.
Let's talk
On unpaid debts you have already paid VAT and taxes
Getting them back is possible but requires precise conditions, which have to be built up while you are trying to recover the money. Not afterwards.