International debt collection: Legal strategies and best practices for Vietnamese businesses

In today’s globalized business environment, the occurrence of debts is often unavoidable. However, when foreign partners fail to fulfill their payment obligations, or conversely, when Vietnamese enterprises face debt claims from abroad, the issue transcends simply sending a debt confirmation or a reminder letter.

International debt collection is a complex process that necessitates a coordinated approach involving legal, diplomatic, economic, and dispute resolution strategies. From establishing jurisdiction and selecting the appropriate dispute resolution mechanism to enforcing court judgments or arbitral awards in another country, every step requires specialized knowledge and thorough preparation.

1. Legal basis for cross-border debt collection

Debt collection in an international context is a complex process, simultaneously governed by various legal systems. For effective execution, businesses need to identify and firmly grasp the following four crucial legal pillars:

Contractual Agreements: The contract serves as the initial and most vital “legal framework” in all international commercial transactions. The clauses established within the contract will determine the dispute resolution mechanism – whether arbitration or court proceedings – and which country’s judicial body has jurisdiction; which country’s governing law the parties choose to apply in case of a dispute, and whether it is accompanied by international treaties; as well as clauses related to the language used to interpret the contract’s terms – whether it’s the language of one of the parties or a third-party language – along with other important provisions.

Poorly drafted contracts or ambiguities in these clauses are a primary reason why businesses face risks in the process of international debt collection, especially when legal conflicts arise between countries.

Regulations on the Recognition and Enforcement of Foreign Judgments and Arbitral Awards: A court judgment or an arbitral award, despite its legal validity in the issuing jurisdiction, does not automatically have effect in another country. Therefore, businesses need to anticipate this issue when selecting the applicable law and the dispute resolution body during the contract drafting stage. This is particularly crucial to avoid a situation where, in the event of an actual dispute, Vietnamese enterprises face the dilemma of losing their claim if they don’t initiate legal action, but encountering significant obstacles in the practical recognition and enforcement of the judgment if they do.

Regarding arbitral awards, the 1958 New York Convention (to which Vietnam is a signatory) provides a mechanism for recognition and enforcement in over 170 countries. However, there remains the possibility of an award being refused if it violates public policy or does not meet formal requirements.

Bilateral Agreements and International Treaties on Civil Judicial Assistance: These serve as a “bridge” between the legal systems of different countries. Through these agreements, businesses can: request assistance in serving legal documents, taking testimonies, and collecting evidence; request the recognition and enforcement of judgments from one country in another, and vice versa; and benefit from preferential mechanisms regarding costs, time, and inter-agency cooperation.

2. Debt collection methods abroad

Debt collection from foreign partners is not merely a typical legal proceeding, but rather a comprehensive legal strategy that requires the right choice of dispute resolution mechanism from the outset. Depending on the terms agreed upon in the contract, the debtor’s domicile or location of assets, as well as the company’s internal capabilities, two of the most common and fundamental options currently under consideration are: (i) Initiating a lawsuit in a foreign court, or (ii) Initiating arbitration at an international commercial arbitration institution.

Initiating a lawsuit in a foreign court: A traditional legal solution with many challenges.

Initiating a lawsuit in a foreign court is a form of dispute resolution following formal civil procedure in the country where the company believes jurisdiction lies. This method is often considered when: the contract between the parties contains a clause selecting a foreign court as the place of dispute resolution; the debtor is a legal entity/individual residing, headquartered, or holding assets abroad; the dispute arises or has a close connection with the country where the company wishes to file the lawsuit.

However, despite its high enforceability and status as a traditional legal tool, initiating a lawsuit in a foreign court poses a series of serious challenges for Vietnamese businesses, both legally and practically:

• High litigation costs – an economic equation requiring careful consideration.

In many countries with developed judicial systems, the cost of initiating a lawsuit is the first hurdle that makes businesses cautious. In addition to court fees (often calculated as a percentage of the disputed amount), the incurred costs include: foreign attorneys’ fees, typically billed hourly at a high average rate; document translation and notarization costs, especially in countries requiring complete and detailed evidentiary documents; costs for serving documents abroad, and costs for proving jurisdiction; and in many cases, travel expenses or fees for hiring local counsel for coordination.

For disputes involving a relatively small debt value, initiating a lawsuit in a foreign court may become economically unfeasible.

• Complexity in procedural rules and language – legal culture barriers

Each country’s legal system has its own distinct procedural regulations, and this creates numerous obstacles for Vietnamese businesses unfamiliar with the process of initiating lawsuits, proving jurisdictional competence, and the order of service; the methods of collecting and presenting evidence in accordance with local legal standards; issues of interpretation, document presentation, as well as completely different legal writing styles and argumentation techniques.

• Enforcement of judgments

Even after overcoming procedural hurdles and winning the case in a foreign court, businesses still face a larger legal obstacle – the enforcement of the judgment. The enforcement of a foreign court judgment in the country where the debtor holds assets depends on several conditions: whether the enforcing country has a civil judicial assistance agreement with Vietnam or between the adjudicating country and the country where the assets are located; whether the judgment meets the domestic legal requirements for the recognition of foreign judgments for cases handled in Vietnam and enforced in another country.

Initiating arbitration at an international commercial arbitration institution: A flexible and highly globalized tool

In contrast to the traditional adjudication model of the courts, international commercial arbitration is a private dispute resolution mechanism established by an arbitration agreement between the parties and governed by the specific procedural rules of each arbitration center (e.g., ICC, SIAC, LCIA, HKIAC…). In many cases, international businesses – including Vietnamese enterprises – prioritize arbitration due to the practical benefits this method offers:

• High flexibility and confidentiality

Arbitrators are not bound by a rigid legal system like courts, which allows the parties the freedom to choose: the language of the proceedings; the applicable law (common law, civil law, trade customs, etc.); the number and identity of the arbitrators, who can be chosen for their in-depth knowledge of the disputed area; and the location for hearings, including online.

Specially, arbitration proceedings typically take place privately, unlike in courts – a significant advantage for businesses seeking to maintain trade secrets or avoid damage to their reputation.

• Widespread enforceability of awards – thanks to the 1958 New York Convention

One of the most significant advantages of international commercial arbitration is its cross-border effectiveness. Thanks to the 1958 New York Convention – to which Vietnam and over 170 other countries are signatories – arbitral awards can be recognized and enforced in most countries worldwide through relatively clear and unified legal procedures. Unlike foreign court judgments, arbitral awards are not subject to a review of their merits and are only refused enforcement in narrow circumstances (e.g., violation of fundamental procedural rules, arbitrators exceeding their jurisdiction, etc.).

However, arbitration is not a ‘silver bullet’ in every situation. Businesses still need to be mindful of: (i) Arbitration costs, especially at major international centers, which can be very high due to administrative fees, arbitrator fees, and hearing expenses, (ii) The enforcement of awards, while legally favorable, can still face difficulties in gathering information about the debtor’s assets without active support from local authorities, (iii) Some countries, despite being members of the New York Convention, enforce it very strictly and protect domestic interests, with China, India, and Nigeria being prime examples.

Overall, each method has its own advantages and disadvantages depending on the specific case. The choice of method will be assessed based on the enforceability of the outcome and the current status of the counterparty.

In addition, based on its experience, CDLAF recognizes the core differences between the two methods of cross-border debt collection – litigation in court and international commercial arbitration – lie in three key factors: procedural flexibility, coercive power in enforcement, and the scope of international recognition of the award’s validity.

Before choosing the appropriate legal path, businesses need to ask themselves strategic, guiding questions: Where are the debtor’s assets currently located? Does the signed contract contain an arbitration clause? Is the value of the dispute worth the investment in litigation costs? What level of confidentiality, speed of processing, and control over the dispute process is required? Answering these questions fully and honestly will not only help businesses avoid unforeseen legal risks but also provide a foundation for making effective legal decisions that balance protecting legitimate rights and optimizing resources in the journey of cross-border debt collection – a challenging journey, but one that also opens up considerable opportunities if prepared for correctly from the outset.

Time of writing: 12/05/2025

The article contains general information which is of reference value, in case you want to receive legal opinions on issues you need clarification on, please get in touch with our Lawyer  at  info@cdlaf.vn

You can refer for more information:

• Legal strategy for foreign investors in Equity and Asset M&A transactions in Vietnam
• Legal requirements for organizing various types of events in Vietnam: A comprehensive guide for investors
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