For foreign businesses, collecting overdue claims in Latin America may differ substantially from collecting from companies based at home.
In this post I want to highlight six issues foreign businesses have to keep in mind and get familiar with to understand collecting debts from businesses in Latin America.
Language
The first one, language, is key. There are two major business languages in Latin America: Spanish and Portuguese. In Brazil Portuguese is spoken, in almost all of the other countries in Latin America Spanish is the language. If you try to collect a debt in Brazil you should speak Portuguese; in the most of the rest of Latin America, you have to speak Spanish.
Communication
Closely related to language, but more methodical, is communication. In Latin America the “personal touch” is still very important, so if you try to collect a debt, grab the telephone as much as you can to get on top of the priority list. Because of the distances, rather than letters, e-mail is an efficient and effective way of formal communication.
Geography
Location can be determinant. There is a huge difference between countries as to methods and possibilities to collect a debt, as there may be between regions within countries. Chile can be straightforward, Brazil difficult, and Venezuela impossible. Collecting a debt from a company based in a big city (Sao Paulo, Santiago, Buenos Aires, Mexico City, Bogota), where generally all facilities are present, is one thing, but collecting a debt from a company operating out of a peripheral region (amazons, desert, islands), where infrastructure is generally less developed, can be substantially harder.
Economy
It is important to understand economic circumstances as they might directly affect chances to successfully collect a debt. Now most of Latin America’s economies have been doing relatively well over the last years. However, countries like Ecuador, Venezuela and Argentina have been struggling. Growth in Brazil has slowed down. On the other hand, countries like Colombia, Peru and Panama have seen substantial and continuous growth, boosting foreign trade which might also favor debt collection efforts.
Socio-political situation
The social-political situation can have a huge important on international relations and trade and consequently on debt collection efforts. Payment restrictions (which might also be classified under economy, but I consider them above all economic politics) in countries like Venezuela, Argentina, and, to a lesser extent, Brazil, directly negatively affect debt collection efforts and sometimes, in case of Venezuela, makes it even impossible to collect a debt. But also social unrest, which for example is affecting, still, parts of Colombia and nowadays several regions in Mexico complicate debt collection as entire regions are inaccessible with damaged infrastructure and business suffer financially because of that.
Legal systems
Eventual legal options determine the level of leverage a foreign creditor has if amicable debt collection proves unsuccessful. That is why knowledge of legal systems is essential in debt collection. In general, all over Latin America legal proceedings are challenging and costly. Relatively straightforward might be Chile; countries like Brazil, Mexico and Colombia (which recently experienced a months-long strike amongst judges which put the entire system at a stand-still) are difficult to deal with; and, again, also from a legal point of view, Venezuela is virtually impossible.
Six issues are highlighted which foreign businesses should familiarize with to understand debt collection in Latin America: language, communication, geography, economy, social-political situation and legal systems.
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