Collecting a debt in Latin America may be a complicated and slow process. In the amicable phase, reaching a debtor, establishing contact, negotiating a deal and getting payments going may be generally enough. In several cases, amicably one will not be able to collect an outstanding debt.
Naturally, the next step is to try to enforce payment of the debt through legal proceedings. However, and as already indicate before in our blog posts, in general one should be cautious and conservative when it comes down to starting a law suit in the attempt to collect a debt Latin America.
First, all possible amicable attempts must really be completely exhausted before even starting to consider legal proceedings. If amicable collections have not been successful, and no payment was done, or no payment plan could be agreed on, or the debt was not otherwise settled or compensated, then legal options for collections in Latin America should be assessed.
And when considering legal debt collection options in Latin America, please ask yourself the following four questions.
Is the debt large enough to justify legal proceedings?
The size of the claim is the first thing to look at. The larger the amount of the claim, the more likely it is that considering legal proceedings is justifiable. To answer this question and to determine whether the claimed amount is worth it or not to go legal, you must look at what the value of the claim is for your organization, as you will have to continue dedicate time and resources to the attempts to collect.
Does the location of the debtor make it possible to go legal?
Next item on the list is the location of the debtor. Where is your debtor based? As that is the place where you will start the law suit if you decide to try to collect the debt through legal proceedings. Whether or not a location (country, region or city) is accessible in practice for foreign creditors, varies substantially in Latin America. Currently, for example Chile and several of the Caribbean island nations have accessible legal systems. In other countries, because of a variety of reasons ranging from economical to political, trying to collect a foreign claim, is substantially more complicated (examples are Colombia, Brazil, or Mexico), and other countries are at this moment, practically impossible for foreign creditors (Venezuela is a notorious example).
Will your debtor be able to pay the debt, if legal is successful?
The next step is to determine the reason; why has your debtor not paid? Are there financial issues? Or is the claim disputed by debtor? Is debtor currently in a situation which makes it under any circumstances impossible to pay, like bankruptcy or similar? It is essential to have an indication whether or not your debtor will actually be able to pay the debt, even if you win a law suit and obtain a legal title to collect.
Do legal proceedings justify the costs involved?
And finally, but very importantly, you should have a clear picture as to the costs involved of legal proceedings in Latin America. Now again, this may differ greatly between countries, regions and cities. What also affects the potential legal costs are the kind of legal proceedings, which may depend on age of invoices or available documentation. As a rule of thumb, going legal in Latin America is expensive, often too expensive looking at the amounts to be collected and the likelihood this will actually happen may be low.
If the answer to all four questions above is yes, then you should indeed consider trying to go legal to enforce payment of your claim in Latin America.
However, if the answer to even only one of the questions above is no, do not consider going legal, write the debt off as unrecoverable, and focus your energy on other business.
To participate in conversations about debt collection in Latin America please join the Linked-In Group Debt Collection Latin America.