Several countries in Latin America have foreign exchange controls in place. Such foreign exchange controls often have an impact on the accounts receivable management of foreign businesses trying to collect.
What are foreign exchange controls?
Foreign exchange controls are collectively a series of control mechanisms to which individuals and businesses are subject to when buying or selling foreign currencies. Governments use foreign exchange controls as a political instrument in an attempt to control and protect local economy.
Foreign exchange controls can include:
- Prohibition of use of foreign currency within the national borders
- Fixed change rates
- Restrictions on the amount of a foreign currency that can be bought
- Restrictions on the amount of national currency that can be sold
- Making currency exchange subject to government-approval
Which countries have foreign exchange controls?
Currently, the main countries in Latin America whose residents are subject, to a larger or lesser extent, to foreign exchange controls, include:
What is the effect on collections?
For foreign companies that are collecting on invoices in a country whose residents are subject to foreign exchange controls have to keep in mind that such foreign exchange control may impact several aspect of accounts receivable management: deteriorating payment behavior on your debtor’s side, increase of days of sales outstanding (DSO), increasing costs of credit insurances, decrease of success rate on (debt) collection, and, in the worst case scenario: not getting paid at all.
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