South America Commercial Debt Recovery: Issues

What are the typical issues companies encounter when attempting to collect an international debt from a business in South America?

Below we list eight issues we deal with in commercial debt recovery in daily practice.

Financial issues & insolvency

South America debt recovery insolvency

One of the of main issues commercial debt recovery in South America may run into is financial problems. Businesses are in bad weather, caused by economic micro- or macro factors, and cannot comply with their payment obligations. Sometimes the issue is insolvency on the debtor’s end. 

Disputes & misunderstanding

Often a reason for overdue payments in South America is a dispute or misunderstanding regarding the commercial deal or the services provided or products delivered. Reality does not match expectations. The amounts claimed during debt recovery are disputed or there is a misunderstanding as to the amount actually payable.

Incompatible paperwork

South America debt recovery documents

In some cases, the paperwork between client and the debtor in South America is incompatible. At least from debtor’s point of view, payment cannot be done as debtor requires other or additional paperwork in order to comply with local legal or accountancy rules and remit payment. Such paperwork can include the contract, order forms, order confirmations and invoices. 

Currency exchange controls

In some countries, debt recovery in South America can be challenged by foreign currency exchange controls. In some countries, like Brazil, international payments are subject to prior controls which can delay or obstruct payment. From other countries, notoriously Argentina and Venezuela (please see previous post about Venezuela),  it has become difficult or impossible to transfer monies out of the country. For more info on foreign currency exchange controls in South America, please click here.

Lack of leverage

International debt recovery gains strength with the leverage the collector and his or her client has. Leverage can be a commercial relationship the debtor still has an interest in to maintain or re-establish, the realistic option of enforcing payment legally if no payment is done or a payment agreement is not reached amicably, or the reputation debtor wants to safeguard. If there no such leverage, because debtor is not interested in re-establishing the commercial relationship or going legal is in reality, because of the local circumstances or an incomplete file, not an alternative, it can become an issue to collect an international debt in South America.

Communication

South America debt recovery communication

Often communication is an issue for commercial debt recovery in South America. Without knowledge of the Spanish language almost all over South America, or particularly Portuguese in Brazil, it is difficult and in most cases impossible to attempt debt collection in South America. Also the distance (physical or time zone wise) can be a major issue for debt recovery from a business in South America.  

Unprofessional behavior

Sometimes collectors and their clients are confronted with unprofessional behavior of businesses in South America. Although unprofessional behavior in business takes place all over the world, the level of informality in business in South America sadly enough regularly provokes unprofessional behavior and payment avoidance towards creditors abroad.

Unfamiliarity

An issue for creditors or their collectors can be the unfamiliarity with South America as a territory. Its infrastructure, (business) culture and collection alternatives are often unknown to businesses outside South America.

Debt recovery in South America

If you are interested in learning more or discussing issues that rise when attempting to collect an international debt in South America, or in general you would like to know more about debt collection in Latin America & the Caribbean, please connect with Cobroamericas on Linked-In or follow us on Twitter.

To participate in the conversation about debt collection in Latin America please join the Linked-In Group Debt Collection Latin America.

International Debt Recovery: Communication Techniques

The previous two posts about communication in international debt recovery were about the context and means of communication available to the collector. This post will be about communication technics in international debt recovery.

We will describe four techniques that are without doubt essential for communication in international debt recovery.

Tight collections process

international debt recovery techniques processIn first instance, it is of the utmost importance that you set the framework when you are collecting a debt internationally. Timelines, frequent and consistent following up by email and telephone, and if and when necessary, regular mail, means you set the rules of the game. You should almost show empathy, be professional, take into account the debtor’s situation and the circumstances that may affect speed and outcome, but at the end of the day your aim is to collect as much as possible, as fast as possible. Give debtor reasonable time between the follow ups to comply with what you request or agree, but make sure there are clear deadlines and strictly follow up on your own deadlines.

Use of leverage

international debt recovery leverageWhen communicating to collect a debt internationally, you must be aware of the leverage you have – or do not have. This determines whether you can demand full payment, should look for a settlement, can go legal or not, may consider accepting return of products or goods, and if there is a reasonable chance to reach an agreement on a payment plan. Leverage can be the existence of a commercial relationship the debtor still has an interest in to maintain or re-establish, the realistic option of enforcing payment legally if no payment is done or a payment agreement is reached amicably, or the reputation debtor wants to safeguard. Understanding the leverage, you have and using it in your communication is in our opinion is an absolutely essential tool for successful international debt recovery.

Negotiation

3d bussines white and red humans make a handshake

When the situation requires or provides for the opportunity, be prepared to negotiate with debtor during your communication. If the situation requires so, or if debtor is reasonably looking for a settlement or a payment plan, be open to negotiate; be reasonable, be fair, but always keep in mind your client’s interest in collecting as much as possible, as fast as possible. Each situation is different in that respect, and the circumstances dictate what will be as much as possible and what fast is. Negotiation is an integral part of international debt recovery, and particularly if substantial amounts are involved that make a serious economic difference for debtor and client.

Mediation

international debt recovery techniques mediationIf the reason of an outstanding international debt is a dispute, international debt recovery turns into true mediation. If the situation requires so, and as often legal proceedings is a rather expensive, time-consuming and therefore unattractive alternative, in circumstances with a dispute involved, in reality the only serious option to recover part of the debt is mediation. Obviously the aim is to recover as much as possible, as fast as possible: as you will see, that should at all circumstances be the starting point. When you mediate between debtor and your client you will have to accept that the outcome will end up somewhere in the middle. You should always look for the best solution possible for your client, taking at the same time into account debtor’s (reasonable) arguments, situation, and circumstances.

In this post we discussed four techniques for international debt recovery: a tight collection process, use of leverage, negotiation and mediation.

If you are interested in learning more on the subject of communication in international debt recovery, or international debt recovery in general, or specifically debt collection in Latin America & the Caribbean, please connect with Cobroamericas on Linked-In or follow us on Twitter.

To participate in the conversation about debt collection in Latin America please join the Linked-In Group Debt Collection Latin America.

International Debt Recovery: Means Of Communication

In the previous post we discussed the importance of understanding the context for communication in international debt recovery. In this post we will mention the four basic means of communication with debtors abroad.

Regular mail

international debt collection sending letterAlthough in certain cases it is good to still send regular mail, at least if and when it might become necessary for file building in case of legal proceeding, for example, to formally have put an individual or business on notice, the letter has long lost its prominent function in international debt recovery. Often it is too slow, too unreliable and one of the less effective means of communication. Addresses are temporary, people and businesses move or even change country. We still mention it but it should not be on the top priority list.

Telephone

International Debt Collection telephoneUsing the telephone to make calls is still in our view essential for effective and successful international debt recovery. Using the phone includes landlines, cell phones, WhatsApp, and Skype (the latter three also include chat options). Although one might close a deal by email only, usually understanding the context of debtor’ situation, negotiating payment or settlement, or mediation, can only be done effectively by talking to debtor.

E-mail

international debt collection emailInternational debt recovery nowadays is hard to imagine without e-mail. A lot of actual payment arrangements and settlements are fully negotiated only by using e-mail. Most of all however, e-mail is a speedy way of formal communication which has almost in its entirety replaced regular mail, to transmit notices, supporting documentation, payment proposals and payment plans. What makes e-mail often even more reliable than regular mail is that people tend to stick to their personal e-mail addresses, also when they change home or country. Physical addresses generally tend to be more temporary than e-mail. For international debt recovery, in our opinion, it is absolutely essential to make use of e-mail as a main element of communication.

Social Media

international debt collection social mediaSocial Media have rapidly become very important means of communication in international debt recovery. Social Media like Facebook, Twitter, and Linked-In offer direct chat options. Also, like e-mail people tend to stick to their Social Media which makes it resistant with respect to moves or change of country. In addition, Social Media offer an important source of information about individual debtors or companies.  Social Media should definitely be part of the means of communication in international debt recovery.

In this post we discussed the four basic means of communication in international debt recovery: regular mail, telephone, e-mail and Social Media.

If you are interested in learning more on the subject of communication in international debt recovery, or international debt recovery in general, or specifically debt collection in Latin America & the Caribbean, please connect with Cobroamericas on Linked-In or follow us on Twitter.

To participate in the conversation about debt collection in Latin America please join the Linked-In Group Debt Collection Latin America.

International Debt Recovery: Context For Communication

For practicing international debt collection, communication is essential. Communication in international debt recovery will at all times be based on a certain context which may consist of a physical distance between creditor / collector and debtor, cultural differences, other languages spoken, and several time zones involved.

Distance

international debt recovery distanceWe assume that while collecting an international debt you will be confronted with a physical distance between creditor and collector on one end, and the debtor on the other (and sometimes, perhaps often, there is also a physical distance between creditor and collector, but that is for another post); the debtor is based in another country. This requires practically that you understand how to communicate abroad, which starts as simple as dialing internationally when you make a phone call (which can sometimes be a challenge because specific indications for calling cell phones or remote areas, for example), to understanding the location your debtor is in and the economic, social or even political environment.

Culture

international debt recovery cultureInternational debt recovery means you should understand the cultural differences that may exist between creditor, collector and debtor and which may affect the collection process. Cultural differences include business ethics, manners, and local rhythm of life, amongst others. In my view it is extremely important to understand culture in order to effectively collect debt internationally, to negotiate or mediate successfully, and also to properly advise your client.

Languages

international debt recovery languages.jpgFor recovering a debt internationally, it is essential to speak your languages. English might be for many the international business language but often people do not speak English, or at least not sufficiently enough, for you to be able to properly collect a debt, understand the debtor’s circumstances, negotiate or mediate. If I look at Latin America, in most of the countries you will not get very far if you do not speak Spanish, or Portuguese in Brazil.

Time zones

international debt recovery time zones 2Dealing with different time zones is an integral part of the context of international debt recovery. The difference can be a couple of hours up to an entire day. To effectively collect a debt internationally you have to be aware of the differences in time zones but also local business hours, and even take into account times people usually start to work, take a lunch break, have a siesta, as well as national and local holidays.

In order to effectively collect a debt internationally, communication is essential. In this post we discussed what I see as the four basic assumptions with respect to the context for communication in international debt recovery: The physical distance, cultural differences, another language spoken, and different time zones between creditor / collector and debtor.

If you are interested in learning more on the subject of communication in international debt recovery, or international debt recovery in general, or specifically debt collection in Latin America & the Caribbean, please connect with Cobroamericas on Linked-In or follow us on Twitter.

To participate in the conversation about debt collection in Latin America please join the Linked-In Group Debt Collection Latin America.

Debt Collection Contributes To Latin American Economies

Professional debt collection services can contribute to the economies of Latin America. It is true, the overall quality of debt collection services will need to improve, and fair practices need to be determined and honored, and there may still be quite a long way to go. But there is definitely an opportunity for growth and professionalization of debt collection services and with that, the possibilities to contribute to improvements to Latin American economies.

Below eight reasons how debt collection contributes to improvement of the economies in Latin America.

Debt collection improves payment behavior in Latin America

A professional debt collection industry improves payment behavior among individuals and business. And so would a professional debt collection industry do in Latin America. Exceptions notwithstanding, payment behavior is in general poor in Latin America, both considering domestic and foreign debt. This is partly due to the absence of professional collection procedures within companies, the absence of debt collection regulations and laws and the hassle that legal proceedings mean in the majority of the countries of Latin America (click here for more info on legal proceedings in Latin America): all elements required by properly functioning professional debt collection services.

Debt collection reduces Latin American bad debt

latin america debt collectionA professional debt collection industry would mean more collections on overdue invoices for companies in Latin America and hence it would imply a reduction in bad debt, consumer debt and company debt alike. This would improve cash flow for businesses substantially and contribute to production, investment and repayment of debt for Latin American businesses.

Debt collection professionalizes procedures within Latin American businesses

A professional debt collection industry would contribute to professionalizing collection procedures within Latin American businesses. This results would not only be increasing collections on due and overdue invoices, reducing the average days sales outstanding (DSO) it would also boost general professionalization of business operations and procedures and create a healthy balance between deal making / sales / relationship management and credit management / account receivables management.  

Debt collection generate income for Latin American businesses

Debt collection means generating income for Latin American businesses. Debt Collection increases collections on overdue invoice and generates direct additional cash flow, hence an increase in income.

Professional debt collection services create business and jobs in Latin America

latin america debt collection jobsA professional debt collection industry creates jobs in Latin America. A growing debt collection industry means more companies dedicating to debt collection and more people that will need to be hired to fulfill the job.

Professional debt collection services contribute to formalizing collection rules

Debt Collection often shows the upsides and the downsides of collecting on overdue invoices. Generally, once the debt collection industry professionalizes, it will contribute to formalizing collection rules. On the other hand, collections rules will help regulating the debt collection business in Latin America. In short, to create fair debt collection practices.

Debt collection services help determine consumer rights and obligations

latin america debt collection consumer rightsDebt Collection, whether that is amicable debt collection or legal deb collection, will push for determining what consumer rights and obligations are. Bad behavior by unprofessional debt collection agencies will eventually set the terms for consumer rights. Protection of creditors rights, in an economy with professional debt collection services often represented by debt collection agencies, will set the consumer obligations.

Debt collection improves international credibility of Latin American businesses

The presence of a professional and reliable debt collection industry, debt collection regulations, creditors rights and obligations, consumer rights and obligations, functioning legal systems to enforce payment of bad debt: it will all improve the credibility and prestige of Latin American economies and businesses, and hence positively affect Latin America’s international trade, credit ratings and business opportunities for credit insurances and credit lines.

How does debt collection contribute to Latin American economies?

Debt collection can contribute to economic growth in Latin America as it potentially improves payment behavior, reduces bad debt, it professionalizes collection procedures for businesses, it generates income for businesses, a mature debt collection industry creates business and jobs, it helps formalizing national collection rules, a responsible and mature debt collection industry helps improving consumer rights and obligations, it improves credibility and prestige of national industry and therewith contributes to transnational trade.

If you are interested in learning more on the subject of debt collection in Latin America please connect with Cobroamericas on Linked-In or follow us on Twitter.

To participate in the conversation about debt collection in Latin America please join the Linked-In Group Debt Collection Latin America.

Debt Collection in Latin America: Effects of Currency Devaluation

150913 OM_LatinAmer_Outlook_640x360-640x360In recent weeks, under the influence of international and local economic trends, several of Latin America’s currencies have devaluated substantially as against the US Dollar. Take the Brazilian Real: did you still get about 3 Reais for a Dollar, today, September 14, it is almost 4 Reais for a Dollar.

The Mexican Peso shows a similar trend: mids of June, it was about 15.30 Pesos for a Dollar, whereas at the end of August the exchange rate even exceeded 17 Pesos for a Dollar.

It is not only hurting trade, it also affects debt collection in Latin America, from individuals and businesses alike. Here are five negative effects of currency devaluation on collections in Latin America.

  1. The first effect might be the most obvious: existing foreign debt for Latin American Individuals and businesses, often incurred in US Dollars, become more expensive as the amount of the debt converted to the local currency, i.e. Mexican Peso in Mexico, and Brazilian Real in Brazil, increases. It means that individuals and business may not be able to anymore pay at the same pace and in the same quantities.
  1. A second effect is especially for those companies that primarily do business abroad and invoices are predominantly in US Dollar or other foreign currencies: individuals and business may not be able anymore to pay (all) due invoices, which as a result become overdue, and hence contribute to an increase in outstanding foreign debt.
  1. A popular economic tool for governments in Latin America is, in times of pressure on currency, and in an attempt to protect national economies and currencies, to introduce foreign currency controls, putting up hurdles for local individuals and businesses to buy foreign currencies like the US Dollar. This makes it more complicated, and more costly, to pay foreign invoices and debt, causing (a) delays in payment of, and (b) increase of outstanding foreign debt. Please check out some of our previous posts about Currency Exchange Controls. Some of the most notorious examples in Latin America of effects are seen in Venezuela, Argentina and Brazil.
  1. As soon as individuals and businesses cannot pay debts and invoices become overdue, and individuals and businesses in Latin America start to increasingly default, there will be a pressure on the commercial relationship between individuals and businesses, and business relationships and international prestige will be negatively affected.
  1. If Latin American individuals and businesses cannot pay debts anymore or it becomes harder to collect, credit insurance companies and foreign lenders might become more conservative as to respectively insuring and lending against business in Latin America, which negatively affects trade with Latin America and economic growth and business activities.

150913 Money_Transfer_-_G_2163621cIronically, these effects might increase international debt collection business in Latin America. However, on the other hand, it will become harder to actually successfully collect outstanding debts in Latin America become of less resources and more obstacles to pay.

If you are interested in learning more on the subject of currency politics and debt collection in Latin America please connect with Cobroamericas on Linked-In or follow us on Twitter.

To participate in the conversation about debt collection in Latin America please join the Linked-In Group Debt Collection Latin America.

Chile: The Most Debt Collection Friendly Country Of Latin America?

Chile is in several aspects an exception in Latin America. Chile has been politically and economically stable for decades. It is perhaps also the only Latin American country which has truly successfully countered extreme poverty. Its capital, Santiago de Chile, is a start-up hub and is considered one of the most investor friendly cities in Latin America.

From experience it also seems to be the most debt collection friendly country in Latin America. What are the reasons behind this?

The first reason is that the country has a truly open economy for foreign trade and investment. Economics politics are focused on attracting foreign businesses and investors and Chilean businesses are used to international commercial relationships. Reputation and prestige in that respect contribute to creating a climate of positive payment behavior.

150906 Chile 5A next reason is that Chile has liberal monetary politics. The country doesn’t have foreign exchange controls like for example Argentina and Brazil, or for that matter, the most notorious country in South America, Venezuela. International payments are not subject to extraordinary foreign currency exchange restrictions which favorite debt collection success for foreign creditors considerably.

The next reason might be somewhat subjective, but Chilean businesses do seem to have a culture of a more positive payment behavior compared to neighboring countries like Brazil or other large Latin American economies like Mexico. This generally makes it easier to negotiate payment of debt or overdue invoices.

Chile’s middle class has grown substantially in the last few decades. And its poverty level has diminished. Because of that, the average salaries and thus purchase power of the population have improved and hence financial sources to pay foreign consumer debt or business debt have been increasing. This is obviously positive for foreign creditors who are looking to collect in Chile.

150906 Chile 2Unlike the majority of other countries in Latin America, Chile is relatively well accessible. It has a decent infrastructure and it doesn’t have politically troubled areas and hence distinguishes itself from amongst others Mexico, Brazil, Argentina, Colombia and several countries in Central America.

The next reason might be subject to personal opinion and may heavily depend on one’s point of view, but Chile’s judicial system is relatively understandable for foreign businesses and is certainly more accessible for foreign creditors than the judicial systems of the majority of the other countries in Latin America, like Brazil, Argentina, Colombia, Mexico, Venezuela, to just mention the most notorious. This gives foreign creditor the necessary leverage to indeed go legal if extrajudicial debt collection is not successful, and Chilean businesses or individuals realizing that might push them to pay amicably or settle.

Chile is in several ways an exception which also seems to be the case with respect to debt collection on behalf of foreign creditors. Reasons include the fact that Chile is an open economy, it does not have extraordinary foreign currency controls, Chile has a culture of more positive payment behavior than other countries in Latin America, the purchase power of the population has increased, the country is relatively well accessible, and Chile’s judicial system is quite understandable for foreign creditors.

If you are interested in learning more on the subject of debt collection in Chile or Latin America please connect on Linked-In or follow me on Twitter.

To participate in the conversation about debt collection in Latin America please join the Linked-In Group Debt Collection Latin America.