Partner 6 Months Late on Payment: Sue or Negotiate?

A counterparty six months late on payment, yet every phone call ends with a promise — "I'll pay in two weeks." So should a business facing a late-paying counterparty sue, or negotiate? This is the question many Vietnamese business owners ask when their counterparty keeps dragging out a debt. Suing feels slow, costly, and uncertain of recovering any money; not suing feels like risking total loss while the limitation period keeps ticking.

This article analyzes a specific hypothetical scenario under currently effective Vietnamese law — late-payment interest, breach penalties, the limitation period for filing suit, and the practical risks of each option — so you have a basis for your decision.

Table of contents

• 1. The scenario (hypothetical)
• 2. Legal questions
• 3. Analysis
• 3.1. Applicable legal framework
• 3.2. Option A: Strategic negotiation
• 3.3. Option B: Litigation before the court
• 3.4. Comparing the two options
• 4. Conclusion and recommendations
• 5. Extended questions

1. The scenario (hypothetical)

The scenario below is hypothetical and for illustrative purposes only. All company names, figures, and details are invented by the writer and relate to no real-world case.

• F1: Company A (an enterprise in Vietnam) signed a contract to sell goods to Company B (a business counterparty). This is a commercial contract between two traders.
• F2: Company A delivered the full quantity of goods, of the right quality and on time. Company B signed the acceptance record with no complaint whatsoever about the goods.
• F3: The contract requires Company B to pay VND 2 billion within 30 days of acceptance. As of the review date, Company B is 6 months late on payment.
• F4: The contract contains a breach-penalty clause: the party late on payment pays a penalty of 8% of the late amount. The contract has no arbitration clause.
• F5: Company A has repeatedly sent written demands and called to request payment. Each time, Company B promised "I will pay in two weeks," yet to date it has paid nothing. Company B is still operating normally.

2. Legal questions

• Q1: With six months of late payment, what rights does Company A have under the law — principal debt, late-payment interest, breach penalty, compensation for damages?
• Q2: Should it keep negotiating or file suit? What are the advantages and risks of each path in these circumstances?
• Q3: If it sues, where should it file, and how much of the limitation period remains?

3. Analysis

Before choosing between suing and negotiating, the scenario must be unpacked layer by layer: which law governs, what financial rights Company A holds, and how each option works against facts F1–F5. No new facts are added beyond the five facts given.

3.1. Applicable legal framework

From F1 — identifying the governing law. A contract between two companies for business purposes is a commercial contract, governed by the Commercial Law 2005 (Luật Thương mại 2005). The most important consequence: the limitation period for commercial disputes is only 2 years from the moment the lawful rights and interests were infringed (Article 319 of the Commercial Law 2005 (Luật Thương mại 2005)) — shorter than the 3 years for purely civil contract disputes (Article 429 of the Civil Code 2015 (Bộ luật Dân sự 2015)). As to dispute resolution methods, Article 317 of the Commercial Law 2005 (Luật Thương mại 2005) lists them in order: negotiation between the parties, conciliation through a mediator, and only then resolution by arbitration or the court.

From F2 — Company A has performed its obligations. The fact that Company B signed the acceptance record with no complaint is of decisive legal significance: Company B has no basis to invoke the quality or quantity of the goods to refuse payment. Company B's payment obligation is an independent obligation, already due and undisputed as to its origin.

From F3 — liability of the party late on payment. When Company B is late on payment, Company A holds two parallel layers of financial rights:

First, interest on the late amount. Article 306 of the Commercial Law 2005 (Luật Thương mại 2005) provides: a party in breach by delaying payment for goods must pay interest on the late amount at the average overdue-loan interest rate on the market at the time of payment, corresponding to the duration of the delay — unless the parties agree otherwise. How that rate is determined is guided by Article 11 of Resolution 01/2019/NQ-HDTP of the Council of Judges of the Supreme People's Court (Nghị quyết 01/2019/NQ-HDTP của Hội đồng Thẩm phán Tòa án nhân dân tối cao): the court bases it on the average overdue-loan interest rates of at least three commercial banks with head offices, branches, or transaction offices in the province or city where the adjudicating court is located, at the time of first-instance trial. In other words, the specific rate is decided by the court based on market conditions — it is not a fixed figure in the law.

Second, the general principle of the Civil Code. Article 357 of the Civil Code 2015 (Bộ luật Dân sự 2015) provides that a party late in paying money must pay interest on the late amount corresponding to the duration of the delay; the interest rate follows the parties' agreement but must not exceed the limit in Clause 1 of Article 468 (no more than 20% per year), and absent an agreement, Clause 2 of Article 468 applies — i.e., 10% per year. This provision is the "safety net" for relationships outside the scope of the Commercial Law.

Third, compensation for damages. Article 316 of the Commercial Law 2005 (Luật Thương mại 2005) affirms: a party does not lose its right to claim compensation for losses caused by the other party's breach even where other sanctions have already been applied. So in addition to principal, interest, and penalty, Company A may still claim compensation for actual damages — for example, the cost of borrowing to cover the cash flow tied up by the counterparty — if it can prove the loss and the causal link.

From F4 — the 8% penalty clause and the arbitration question. Article 301 of the Commercial Law 2005 (Luật Thương mại 2005) allows the parties to agree on a breach-penalty rate, but not exceeding 8% of the value of the breached contractual obligation. On the late amount of VND 2 billion, the maximum penalty Company A may claim is VND 160 million — exactly what the contract provides, so this clause is valid. Note the condition in Article 300: a breach penalty applies only where the breaching conduct was agreed by the parties as a condition for the penalty and does not fall within an exemption from liability. Because the contract contains no arbitration agreement, the principle in Clause 1, Article 5 of the Law on Commercial Arbitration 2010 (Luật Trọng tài thương mại 2010) must be kept in mind: a dispute may be resolved by arbitration only if the parties have an arbitration agreement — which may be concluded before or after the dispute arises. In this scenario, where Company B has little incentive to agree to arbitration after a dispute has arisen, the court is the practical litigation route.

From F5 — the limitation period and the value of promises. The 2-year limitation period under Article 319 of the Commercial Law 2005 (Luật Thương mại 2005) runs from the moment the rights were infringed — i.e., from the expiry of the 30-day payment deadline after acceptance. With six months elapsed, Company A is still within the period, but the "clock" does not stop during negotiations. The subtle point few people notice: under Article 157 of the Civil Code 2015 (Bộ luật Dân sự 2015), the limitation period recommences when the obligor acknowledges part or all of the obligation, performs part of it, or the parties settle the dispute themselves — counted from the day following the date of the event. A verbal promise of "I'll pay in two weeks" is very hard to prove in court; but a signed debt-confirmation record from Company B is a different matter — both hard evidence and a possible trigger for the limitation period to recommence.

3.2. Option A: Strategic negotiation

The substance of this option. Negotiation is the first method listed by Article 317 of the Commercial Law 2005 (Luật Thương mại 2005) — and in real-world debt recovery, it is also the wisest first move when conducted strategically rather than as mere phone reminders. A disciplined negotiation process includes:

1. Send a formal written demand (not just phone calls): state the amount, the contractual basis, the interest and penalties that will accrue, and set a final payment deadline — for example, 15 to 30 days.
2. Propose a concrete repayment plan: a single payment, or installments on a clear schedule, with security measures such as a mortgage over assets, a bank guarantee, or a third-party guarantee. Do not accept an unsecured repayment schedule.
3. Put every commitment in writing: a debt-confirmation record, a contract appendix on the repayment schedule, an agreement on interest and penalties during the extension. This is a dual-protection step — creating evidence while possibly causing the limitation period to recommence under Article 157 of the Civil Code 2015 (Bộ luật Dân sự 2015).
4. Set a "deadline" for negotiation: decide in advance when to switch to litigation if the counterparty keeps breaking its promises — and prepare the lawsuit file in parallel.

Advantages. The fastest and cheapest route; preserves the business relationship if the parties still want to cooperate; keeps control over cash flow (a secured repayment agreement can sometimes be more certain than a judgment that is hard to enforce); avoids the risk of "winning the case but recovering no money."

Risks and limitations. Negotiation does not interrupt the limitation period — the 2 years under Article 319 of the Commercial Law 2005 (Luật Thương mại 2005) keep running; verbal promises have little evidentiary weight; prolonged negotiation may give the counterparty the opportunity to dissipate assets, making later enforcement harder. Negotiation only works when the counterparty still has goodwill and the ability to pay — two things Company A in this scenario cannot yet be sure of (F5).

3.3. Option B: Litigation before the court

The substance of this option. When negotiation fails or the counterparty no longer acts in good faith, Company A files suit and asks the court to resolve the dispute. The legal points to grasp:

• Where to file: Under the Civil Procedure Code 2015 (Bộ luật Tố tụng dân sự 2015) (as amended by Law 85/2025/QH15, effective from 01/7/2025), business and commercial disputes are heard at first instance by the regional People's Courts; if the first-instance judgment is appealed or protested, the provincial-level People's Court hears the appeal. Determining the specific court (based on the defendant's residence, the place of contract performance, and so on) requires applying the territorial-jurisdiction rules to each case.
• Limitation period: 2 years under Article 319 of the Commercial Law 2005 (Luật Thương mại 2005). With six months elapsed, Company A still has time, but it should not wait until the deadline approaches — allowance must be made for file preparation and evidence gathering.
• Claims to seek: the principal of VND 2 billion; a breach penalty of VND 160 million (8% under Article 301 of the Commercial Law 2005 (Luật Thương mại 2005), within the statutory cap); late-payment interest under Article 306 of the Commercial Law 2005 (Luật Thương mại 2005) as determined by the court (with reference to Article 11 of Resolution 01/2019/NQ-HDTP); compensation for proven actual damages (Article 316 of the Commercial Law 2005 (Luật Thương mại 2005)).

Advantages. A judgment or decision with legal effect — the payment obligation becomes enforceable by compulsion, no longer dependent on the counterparty's goodwill; creates immense legal pressure that often brings the counterparty to the negotiating table in earnest as soon as it receives the case-acceptance notice; locks in the full penalty and interest that negotiation may fail to secure.

Risks and limitations. Litigation takes a long time through multiple levels of adjudication; costs arise (court fees as prescribed, legal fees, management time for the business); winning the case does not mean recovering the money — if Company B has no remaining assets, the enforcement stage may drag on indefinitely; the business relationship with the counterparty is effectively over. In particular, if Company B shows signs of insolvency, the scenario of recovery or bankruptcy proceedings under the Law on Recovery and Bankruptcy 2025 (Luật Phục hồi, phá sản 2025) (142/2025/QH15) must be factored in — effective from 01/3/2026, replacing the Bankruptcy Law 2014 (Luật Phá sản 2014), which has ceased to be effective — where the rights of unsecured creditors may be materially affected.

3.4. Comparing the two options

4. Conclusion and recommendations

Conclusion. On the facts of this scenario — only six months late, the counterparty still operating, still within the 2-year limitation period, the contract already providing an 8% penalty clause — the suitable approach is strategic negotiation first, within a defined time limit (for example, 30 days), while preparing the lawsuit file in parallel. The basis of this conclusion traces back to the given facts: F5 shows the counterparty has not refused to pay but is only stalling, so room for negotiation remains; F3 and F4 show Company A holding the full legal basis (principal, interest, penalty), so its negotiating position is strong; and the 2-year limitation period (from F1, Article 319 of the Commercial Law 2005 (Luật Thương mại 2005)) still gives Company A the space to "negotiate while keeping an exit route," without being cornered. However, negotiation here is not passive waiting — every commitment must be put in writing to serve as evidence and to preserve the limitation period under Article 157 of the Civil Code 2015 (Bộ luật Dân sự 2015). If the set deadline passes without payment, Company A should file suit immediately rather than dragging on.

Recommended next steps:

1. Review the entire contract: payment terms, breach-penalty clause, dispute-resolution clause.
2. Send a formal written demand setting a final payment deadline.
3. Negotiate a repayment plan with a specific schedule and security measures; put every commitment in a document signed by both parties.
4. Systematize the evidence now: the contract, the acceptance record, delivery records, emails and messages exchanged, records of the payment promises.
5. Calculate the full claims: principal, the 8% penalty, late-payment interest, proven actual damages.
6. Mark the 2-year limitation-period milestone (Article 319 of the Commercial Law 2005 (Luật Thương mại 2005)) and fix the latest filing date — do not leave it until the deadline.
7. If negotiation fails, file suit with the competent People's Court; at the same time, assess the counterparty's financial position early to anticipate the enforcement scenario.

Important note: The conclusion above holds only on the assumptions given in the scenario. A single changed fact — for example, the counterparty being insolvent, the contract containing an arbitration clause, or the counterparty being a foreign company — could change the answer completely. Your actual case should be assessed separately by a lawyer based on the specific file.

5. Extended questions

What if the contract contains an arbitration clause? The dispute would then be resolved by arbitration under the parties' agreement (Clause 1, Article 5 of the Law on Commercial Arbitration 2010 (Luật Trọng tài thương mại 2010)), with a 2-year limitation period under Article 33 of that law. Arbitration's advantages are a swift, straightforward procedure, final awards, and high confidentiality — suitable where both parties want to keep the dispute private. The downside is that arbitration costs are usually higher than court fees. See also our article on choosing between commercial arbitration and the court.

What if the counterparty is an individual, not a trader? The relationship may be characterized as a civil rather than a commercial dispute. The limitation period would then be 3 years under Article 429 of the Civil Code 2015 (Bộ luật Dân sự 2015), and late-payment interest would apply under Article 357 combined with Article 468 (10% per year absent agreement) — instead of the market-rate mechanism of Article 306 of the Commercial Law 2005 (Luật Thương mại 2005). The commercial-versus-civil characterization must be assessed for each specific contract.

What if the counterparty shows signs of insolvency? This calls for a strategy shift: instead of simply weighing suing against negotiating, the creditor must assess realistic recovery prospects and consider proceedings under the Law on Recovery and Bankruptcy 2025 (Luật Phục hồi, phá sản 2025) (142/2025/QH15) — effective from 01/3/2026, replacing the Bankruptcy Law 2014 (Luật Phá sản 2014), which has ceased to be effective. In recovery and bankruptcy proceedings, the payment order and creditors' rights follow the specialized law, which differs entirely from an ordinary debt-collection lawsuit. The longer you delay, the greater the risk that other creditors "claim" the counterparty's assets first.

What if the counterparty is a foreign company? A dispute with a foreign element raises additional issues: which law governs the contract, which court or arbitration has jurisdiction, and where the judgment or award will be recognized and enforced. These issues go beyond the hypothetical scenario in this article and must be assessed separately for each transaction structure.

Is your situation different from this scenario?

Every late-payment case has a different file, different contract terms, and a different "personality" of counterparty — the right answer for your case may differ from the hypothetical scenario in this article. Describe your actual situation for a separate assessment: Hotline 0988424851 (FLAT Law Firm).

References

• Civil Code 2015 (Bộ luật Dân sự 2015) (No. 91/2015/QH13) — Articles 157, 357, 429, 468.
• Commercial Law 2005 (Luật Thương mại 2005) (No. 36/2005/QH11) — Articles 300, 301, 306, 316, 317, 319.
• Law on Commercial Arbitration 2010 (Luật Trọng tài thương mại 2010) (No. 54/2010/QH12) — Articles 2, 5, 33.
• Resolution 01/2019/NQ-HDTP of the Council of Judges of the Supreme People's Court (Nghị quyết 01/2019/NQ-HDTP của Hội đồng Thẩm phán Tòa án nhân dân tối cao) — Article 11.
• Civil Procedure Code 2015 (Bộ luật Tố tụng dân sự 2015) (No. 92/2015/QH13), as amended by Law No. 85/2025/QH15 — Articles 35, 37.
• Law on Recovery and Bankruptcy 2025 (Luật Phục hồi, phá sản 2025) (No. 142/2025/QH15) — Articles 87, 88.