Protecting Payment in a Bulgarian Commercial Contract

Define when the debt becomes payable

State the amount or calculation method, currency, VAT treatment, payment date and invoicing process. If payment depends on acceptance, describe who accepts the work, what documents are required and how objections are raised. Avoid incompatible deadlines in the order, contract and annexes.

For staged work, connect each instalment to a measurable milestone. Record variations in scope and price before extra work is undertaken. A general obligation to pay “after approval” can leave the central payment trigger uncertain.

Limit the amount left unsecured

Compare an advance, interim payments, retention and payment against delivery. An advance reduces the supplier’s exposure but increases the customer’s exposure. A retention may protect against defects while leaving too much of the supplier’s price tied up if its release is unclear.

An illustrative approach for a project is to link a first payment to mobilisation, an interim payment to documented delivery and the balance to agreed acceptance. The actual amounts and conditions must reflect the transaction; there is no universally safe percentage.

Select security that can actually be used

A bank guarantee, suretyship, pledge or mortgage has its own legal requirements and costs. They are not interchangeable. Check the secured debt, maximum amount, expiry, claim procedure, relevant form, registration and priority. A guarantee expiring before the payment deadline may provide little useful protection.

If a parent company is to support its subsidiary, establish whether it is undertaking an enforceable obligation rather than issuing a general letter of comfort. If a director signs, clarify whether the signature is solely for the company or also in a separately agreed personal capacity. A director is not automatically personally liable for company debts.

Penalties and interest are not security over assets

A penalty can simplify a claim for a specified breach, but it does not reserve assets for payment. Article 92 of the Obligations and Contracts Act provides the general penalty framework. Article 309 of the Commercial Act prevents reduction for excessiveness where the penalty is due under a commercial transaction between traders. This does not remove the need to assess validity or the other conditions of the claim.

Late-payment interest and recovery costs may be available under the applicable statutory regime. Their starting date, amount and relationship with contractual penalties should be checked; do not assume that every contractual remedy can be accumulated in full.

Preserve evidence during performance

• Keep the signed agreement, annexes, accepted orders and authorised changes.
• Record delivery, completed stages, acceptance, defects and their correction.
• Retain invoices, payment records and correspondence acknowledging the debt.
• Use the agreed addresses and methods for notices and keep evidence of receipt.

An invoice alone may not establish that the underlying obligation was performed and the price is due. Written reminders are useful, but a reminder alone should not be assumed to interrupt limitation. The applicable limitation period and any interruption must be assessed for the specific claim.

Respond to missed payment deliberately

Check whether the amount is due, whether a genuine performance dispute exists and whether notice is required. Consider a demand, negotiated security or settlement, court proceedings and interim protection where the conditions are met. Suspension or rescission should be based on the contract and applicable law; stopping performance without grounds can create a counterclaim.

Before agreeing a payment plan, decide whether existing security continues, what constitutes default and what evidence the settlement creates. An acknowledgement, an instalment schedule and a release of claims have different functions and should not be combined casually.

Does a strong contract guarantee collection?

No. Enforceable terms improve the legal position, but collection still depends on assets, competing creditors and possible insolvency. Counterparty checks and limits on unsecured exposure remain important.

What if the customer is abroad?

Assess governing law, the competent court or arbitral tribunal, service and recognition or enforcement in the relevant country. Cross-border recovery should influence the contract structure before a dispute starts.