When an Indonesian company refuses to pay a foreign supplier’s invoice, the supplier may have several legal options under Indonesian law. The appropriate route depends on the contract, the amount of the debt, the available evidence, and the dispute resolution clause.
The first step is usually to verify the contractual payment obligation and send a formal demand for payment. If the customer continues to refuse payment, the supplier may pursue a civil claim for breach of contract, use the Indonesian simple claim procedure for qualifying claims, or consider bankruptcy or PKPU proceedings where the statutory requirements are satisfied. Arbitration may also be available if the contract contains a valid arbitration agreement.
Indonesian contract law provides an important legal foundation. Article 1338 of the Indonesian Civil Code, or KUHPerdata, establishes that a valid agreement binds the parties. Articles 1238 and 1243 regulate default and compensation. Article 1267 provides remedies when an obligation is not performed.
What Can a Foreign Supplier Do When an Indonesian Company Does Not Pay?
A foreign supplier should first determine whether the unpaid invoice represents a clear contractual debt. The supplier should review:
- The signed supply or distribution agreement
- Purchase orders
- Invoices and payment terms
- Delivery documents
- Proof of acceptance of the goods or services
- Correspondence concerning the outstanding payment
- Any credit notes or payment reconciliation
- The dispute resolution clause
These documents help establish that the goods or services were supplied, the payment obligation became due, and the Indonesian customer failed to perform its obligation.
This distinction matters because an invoice alone may not always establish the entire contractual relationship. The stronger the documentary evidence, the easier it becomes to demonstrate the existence and amount of the debt.
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Main Legal Options for Foreign Suppliers
1. Negotiation and Formal Demand
Negotiation is often the most practical first step. The supplier can send a formal demand, commonly referred to as a somasi, identifying the unpaid invoices, contractual payment deadline, outstanding amount, and deadline for payment.
The demand should also explain the consequences of continued non-payment. Depending on the contract, these may include interest, contractual penalties, termination, arbitration, litigation, or insolvency proceedings.
Indonesian legal practice places significant importance on a creditor’s prior demand when establishing default. Article 1238 of the Civil Code addresses when a debtor may be considered in default, while Article 1243 provides the basis for compensation following continued default.
A formal demand also creates useful evidence if the dispute later proceeds to court.
2. Filing a Civil Lawsuit in Indonesia
If negotiation fails, a foreign supplier may file a civil lawsuit against the Indonesian customer when Indonesian courts have jurisdiction.
Under the general rule reflected in Article 118 HIR, civil claims are generally filed before the District Court having jurisdiction over the defendant’s domicile. Contractual jurisdiction clauses may also affect the appropriate forum where legally valid.
The supplier will need to prove the contractual relationship, the supplier’s performance, the customer’s payment obligation, the maturity of the debt, and the customer’s failure to pay.
Potential evidence includes:
- Contract
- Purchase order
- Invoice
- Delivery receipt
- Bill of lading
- Customs documentation
- Acceptance certificate
- Bank records
- Emails and business correspondence
- Account statements
- Formal demand letters
Foreign companies should also pay close attention to document formalities. Documents originating outside Indonesia may require appropriate legalization or authentication and translation into Bahasa Indonesia for use in Indonesian proceedings.
3. Simple Claim Procedure for Smaller Debts
A foreign supplier may also consider Indonesia’s simple claim procedure when the dispute satisfies the applicable requirements.
Under PERMA No. 4 of 2019, a simple claim may cover breach of contract or unlawful acts involving a material claim of up to Rp500 million. The regulation remains in force.
The Supreme Court explains that the procedure is designed to provide a simpler method for resolving civil disputes with relatively straightforward evidence.
For a foreign supplier, this procedure can be useful where:
- The amount falls within the statutory limit.
- The dispute does not involve excluded subject matter.
- The parties satisfy the procedural requirements.
- The evidence is relatively straightforward.
However, a foreign supplier should not assume that every unpaid invoice qualifies. Jurisdiction, party domicile, the number of parties, and the complexity of evidence must still be assessed.
4. Bankruptcy and PKPU
If the Indonesian customer has serious financial difficulties, ordinary litigation may not always be the most strategic option.
Law No. 37 of 2004 on Bankruptcy and Suspension of Debt Payment Obligations, or PKPU, remains in force.
Article 2 establishes the basic bankruptcy requirement involving a debtor with at least two creditors and at least one debt that has fallen due and is payable.
This mechanism is particularly relevant where the Indonesian company owes money to several creditors. Bankruptcy or PKPU can place the company’s debts within a collective insolvency process.
A foreign supplier should obtain Indonesian legal advice before filing a bankruptcy petition. Insolvency proceedings have significant consequences for the debtor and other creditors. The supplier must also establish its claim properly.
5. What About Arbitration?
The contract should always be checked for an arbitration clause.
Indonesia’s principal arbitration statute is Law No. 30 of 1999 on Arbitration and Alternative Dispute Resolution. The law remains in force.
Where the parties have agreed to arbitration, Article 3 provides that the District Court does not have jurisdiction over disputes covered by the arbitration agreement. Indonesian courts have continued to apply this principle.
This means a foreign supplier should not automatically file a lawsuit in the District Court before reviewing the contract.
Supreme Court Decision No. 2397 K/Pdt/2019
Supreme Court Decision No. 2397 K/Pdt/2019 involving a dispute between PT HM and PT AS concerning the sale and purchase of iron and zinc materials.
The dispute concerned unpaid obligations represented by 43 invoices, with the outstanding amount reaching approximately Rp684 million. The Supreme Court rejected the buyer’s cassation application.
The buyer subsequently filed a judicial review application, which was rejected through Supreme Court Decision No. 607 PK/Pdt/2023. The case therefore provides a useful example of a dispute that proceeded through the Indonesian judicial system and ultimately became final.
The legal significance is practical. A supplier seeking payment should preserve evidence showing the underlying transaction and the outstanding invoices. The case also illustrates that an unpaid invoice dispute can become a contractual default claim when the underlying payment obligation is sufficiently established.
For a foreign supplier, the lesson is straightforward: invoices should be supported by the contract, purchase orders, delivery evidence, and correspondence confirming the transaction.
Conclusion
An Indonesian company’s refusal to pay a foreign supplier’s invoice can create a legal claim for breach of contract when the contractual payment obligation and default can be established. Foreign suppliers have several potential options. Negotiation may provide a commercially efficient solution. Civil litigation can provide a binding court judgment.
The simple claim procedure may be available for qualifying claims up to Rp500 million. Arbitration may apply where the parties have agreed to it. Bankruptcy or PKPU can become relevant when the Indonesian customer has wider financial difficulties.
