International Debt Recovery: Negotiation

Negotiation is an essential component of international debt recovery. The international debt collector will often need to negotiate in order to collect (part of) a debt. Below we are discussing seven elements of negotiation during international debt recovery which we believe are essential for achieving a solution which is satisfactory to your client, the creditor.

Understand the circumstances of the international debt

international debt recovery financial issuesBefore you start negotiating, be sure you understand the circumstances of the debt. Why does debtor not pay? Is the creditor’s claim disputed or acknowledged? Does debtor have financial issues, short-term or long-term? Are financial issues business-related, sector-related or because of domestic economic, social, political or monetary problems (currently Brazil with an economy in regression, or several other Latin American countries like Colombia, Mexico and again Brazil who are dealing with heavy currency devaluations)? Can debtor not pay because they are subject to foreign currency controls (like Argentina or Venezuela)? Which alternatives do you possibly have if you do not accept to negotiate the international debt (insistence on full and immediate payment, legal proceedings to enforce payment, or a write off and end of commercial relationship)?

Set goals: what do you want to achieve with negotiation?

Once you understand the circumstances of the debt, define what your goals are during the debt recovery process. A payment plan or a settlement, or a combination? (partial) waiver of debt in exchange for return of goods? Which target amounts or percentages will you go for and what is the very minimum you will accept for settlement or instalments?

Be realistic about chances of debt recovery

When you set your goals for debt recovery and your negotiations with debtor, be realistic about what can be achieved. What may be realistic is defined by the circumstances of the debt, how much flexibility creditor shows, your negotiations skills and to what extent you can convince debtor but also creditor. Chances for success for negotiations in international debt recovery increase substantially if you are able to find the right balance between what the circumstances of the debt allow you to do, and how far creditor is prepared to go to recover (part of) the international debt.

Show empathy for the debtor

During negotiations with the aim to collect an international debt, it is important that you show empathy for the debtor. You have to understand debtor’s position and take concerns, issues, problems and proposals seriously, and give debtor the feeling that you are negotiating with debtor with the aim to find a mutually satisfactory solution for the international debt. You will have to do this without ever abandoning your position as representative of the creditor, and keeping in mind always what would be the best outcome for the creditor.

Be straight in your communication with creditor

international debt collection communication skillsEqually as important as showing empathy for the debtor, is being straight in your communication with creditor. Never forget: you represent the creditor and your ultimate goal should be to gain as possible as possible from your negotiations during international debt recovery. From your negotiations, case by case, you will learn what the best possible achievement will be during the international debt recovery process. You should constantly communicate with creditor; explain to creditor the steps you are taking. What according to you is possible to achieve under the circumstances, and why. And which goals you set when you negotiate with debtor about the international debt.

Be settlement-minded during negotiations

Having read the above, it goes almost without saying that you should be settlement-minded when you negotiate during the international debt recovery process. You may often take as a fact that you will never get a hundred percent of what you are claiming on behalf of creditor. At the same time, you should want to achieve as much as possible. Perhaps that “as much as possible” is a settlement amount of 80%. Sometimes it will be 50%, or 25%.  Or a payment plan of six months, twelve months, or five years. The definition of a satisfactory settlement during international debt recovery is, as already pointed out above, determined by the circumstances of the debt, and the flexibility of the creditor.

Close a clear agreement about the international debt

international debt recovery agreementOnce you have reached a settlement, or you agreed with creditor and debtor on a payment plan, put the agreement on paper and make sure what the terms and conditions are, what is expected from debtor, and what debtor may expect from the creditor and from you if the agreement is honored and also when the agreement is not honored. It is important to give and take. Meaning that if debtor complies with the settlement payment or payment plan, he or she receives an official release letter and perhaps the door is open again for business between creditor and debtor. On the other hand, if debtor does not honor the agreement, it may mean that the full debt is claimed again by creditor, legal proceedings against debtor are started (if possible at all) or the commercial relationship between creditor and debtor is fully terminated.

In this article we discussed seven elements of negotiation during international debt recovery which we believe are essential: understanding the circumstances of the international debt,

Setting your goals as to what do you want to achieve with negotiation, being realistic about chances of debt recovery, showing empathy for the debtor, being straight in your communication with creditor, being settlement-minded during negotiations, and closing a clear agreement about the international debt.

If you are interested in learning more about how to negotiate in order to recover an international debt, 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.

Advertisements

Leverage In International Debt Collection

Leverage can be vital to achieve success in international debt collection. The existence of leverage is often a vital ingredient to negotiate payment or settlement of outstanding debts and mediation in international claims.

Leverage can be defined as “influence or power used to achieve a desired result”. What kind of leverage may a creditor, its legal representatives or a debt collection agency have when collecting an international, commercial debt?

Existence of a commercial relationship

international debt collection leverageIf the international debt is between two businesses, both the creditor and the debtor may have an interest in maintaining the commercial relationship and solve any financial issues between them. This means that the debtor may be willing to pay and the creditor may be in a position to agree to a settlement of the debt, if necessary. We consider the existence of a commercial relationship and the importance of maintaining the commercial relationship as probably the most important leverage the side of the creditor may have during an international debt collection process.

Legal alternatives for payment of international debt

international debt collection legal actionAnother important leverage the creditor may have is the alternative to start legal proceedings against debtor and to legally enforce payment of an outstanding debt. In reality though, often this alternative may be relative as legal alternatives for international debts are either limited, and / or time-consuming, and / or expensive. On the other hand, the fact that legal proceedings are time consuming and expensive also goes for the debtor, and this in itself may be sufficient leverage to push debtor to pay or except settlement.

Personal relationships between creditor and debtor

international debt collection relationshipsNot unusually, creditor and debtor have been in business together a while and personal relationships have been established across departments and management. This may be another type of leverage the creditor may turn on when collecting a debt internationally. Depending on the size of businesses, there may be several people involved in the business relationship between creditor and debtor, and people may feel committed and may be willing to continue their personal relationships and avoid any personal issues as a result of the outstanding international debt. This leverage can also be used when attempting to collect an international debt, by involving in the negotiation people with a personal interest in the business relationship and personal relationships between them.

Importance of the industry reputation of debtor

international debt collection reputationThe importance of debtor’s industry reputation may also mean leverage for the creditor, when collecting an international debt. Debtor may feel that the existence of the international debt, and disruption of the commercial relationship because of the debt, if it becomes known within debtor’s industry, would damage debtor’s reputation. Some industries have warning lists for bad payers. The creditor, its legal representatives or its debt collection agency should definitely use this leverage, if present.

Leverage in international debt collection

In this post we discussed the important of leverage during negotiations over an international debt. We mentioned the following types of leverage: the existence of a commercial relationship, legal alternatives to enforce payment, personal relationships between creditor and debtor, and the importance of the industry reputation of debtor.

If you are interested in learning more on the subject of leverage in international debt collection, 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.

Collecting a Debt in Mexico: Six Questions

You may have or have had a client in Mexico that does not pay, and eventually you end up or have ended up with an international debt in Mexico.

To determine your chances to successfully collect the debt in Mexico, you should ask yourself the following six questions.

Is your debt in Mexico business or consumer related?

The first questions is whether your debt in Mexico is business or consumer related. Business related debts often have more likelihood to receive a positive response (full or partial payment, settlement or a payment plan) than consumer debts. For international consumer debts, one needs to be realistic as to possibilities to collect, as the response rate is generally low.

How old is the debt in Mexico?

debt collection MexicoThe age of the debt is very important. Being on top of collections in Mexico, and showing that towards your debtors, is vital to be taken seriously in your attempts to collect a debt. The older overdue invoices are, the more difficult it becomes to collect in Mexico, as the same goes everywhere. Mexico’s period of limitation is five years. After five years, it is legally very hard if not impossible to still collect. But any outstanding invoice older than a year will face though times.

What is the size of the debt in Mexico?

How much does your debtor in Mexico owe you? How much are we trying to collect? Don’t spend too much time on the smaller amounts, focus on the mid-size amounts, and be realistic about collection possibilities regarding the bigger amounts.

Can we contact or locate your debtor in Mexico?

Another essential question is: do you have, up to date, contact information of your debtor in Mexico, so that he or she can be approached or located? Essential information includes: full company name (including the legal name how the company is constituted in Mexico) or full name of the person (including second or more first names and second last name!), full address details, telephone numbers, cell phone numbers, e-mail addresses and Social Media profile links. It is important to keep such information up to date during the whole commercial or consumer relationship, as it may turn out to be vital once payment problems show up later on.

Do you have the documentation to support the debt?

collecting a debt in MexicoImportant to make a strong case towards your debtor, and to show leverage to start legal actions in Mexico against your debtor to legally enforce payment of overdue invoices or a contractually agreed payment, is to have on file the documentation to support your claim in Mexico. Supporting documentation regarding the debt may consist of contracts, invoices, order forms, order confirmations, debt acknowledgement, and (email) correspondence about the outstanding invoices. Note: because of the complexity (or ineffectiveness, you may choose yourself how to define it properly!) and costs of legal proceedings in Mexico, it is highly unlikely you may ever end up suing a debtor in Mexico, unless you handle the file as a matter of principle and / or the claim is really – I mean, really – substantial; not just a couple of tens of thousands of dollars. Click on the following links for more info on legal in Mexico or Latin America.

What is the reason the debtor in Mexico is not paying?

Last but not least: why is your debtor in Mexico not paying the overdue invoices? Did your debtor indicate financial problems? Or is the debt, to your knowledge, disputed by your debtor? This helps guiding debt collection in Mexico towards attempts to fully collect, look for a settlement or payment plan, or, which can sometimes just be economically the best option, choose to recommend you to write the debt off (and stop spending more time or money on something which is practically impossible to collect).

In order to determine chances for success in collecting a debt in Mexico, we suggest to ask yourself if the debt is business or consumer related, how old the debt is, what the size of the debt is, if you possess up to date contact details of the debtor in Mexico, if you have on file the documentation to support your claim, and what the reason is or may be your debtor in Mexico is not paying.

If you have an outstanding claim on a debtor in Mexico, or if you have been trying to collect a debt in Mexico, contact us! Please visit our webpage, and follow us on Linked-In and on Twitter.

To participate in conversations about international debt collection in Mexico and Latin America please join the Linked-In Group Debt Collection Latin America.