Recovering a debt in Panama? Read this.

We regularly collect overdue invoices in Panama, on behalf of collection agencies, international financial institutions and export companies.

Panama is in several ways different from surrounding countries in Latin America, because of the particular nature of Panama’s economy. It is an open economy, dollarized (which means that the dollar is the official currency), with a favorable tax climate for foreign investors, and a well-functioning professional infrastructure.

However, often, collecting an outstanding debt or overdue invoices in Panama is a challenge. Here is why.

Protective privacy laws: how to get info on a debtor?

panama collecting debtFirst of all, it is extremely difficult to obtain official information about companies incorporated in Panama. Privacy laws are strict and very protective of companies and individuals doing business in Panama. When collecting a debt, without proper information it might be difficult to locate a debtor, or obtain contact details or up-to-date financial information on a debtor company or individual.

Location: the Panama-based debtor company vs the beneficial owners

Secondly, as Panama is a very populair offshore location, debt collection panamawith many businesses incorporating companies in Panama for privacy protection or tax reasons, the actual beneficial owners of a your Panama-based debtor company may in reality be located outside Panama. This means that although you are looking in Panama to collect a debt, and address your letters and notices of default, or other formal debt collection notifications to the debtor company in Panama, in reality you will have to find ways to contact the beneficial owners of the debtor company and try to negotiate amicably, as legal proceedings against an offshore company in Panama is often not feasible or economically attractive.

The registered agent: buffer between creditor and beneficial owner

panama debtorsThirdly, when you contact the debtor company in Panama in an attempt to collect a debt, you will often find yourself communicating with a so called “registered agent” in Panama (often a law firm) with (very) limited powers and who cannot and will not provide any substantial information or answers. The registered agent will pass the information and notices on to the beneficial owners of the Panama-based debtor company, and they will and often cannot do anything more. On the other hand, they will and cannot provide you (under Panama’s privacy laws) with names and contact details of the beneficial owners.

Protective privacy laws, the actual location of the beneficial owners as opposed to the Panama-based debtor company, and the involvement of a registered agents may make it challenging to collecting a debt in Panama. However, understanding Panama’s economy and corporate structures, having professionals locally and having the relationships with local law firms and registered agents can make the difference. We have succesfully collected in Panama and would be happy to assist you as well.

If you are interested in learning more or discussing issues that rise when attempting to collect an international debt in Panama, 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.

Collecting a debt in Costa Rica: four steps

Many international companies from North America, Europe and Asia do business in Costa Rica.

Inevitably, some companies face collection issues regarding overdue invoices in Costa Rica.

In order to solve or avoid issues with collection of debts in Costa Rica, we recommend foreign businesses to following the four steps set out in this article.

Costa Rica: small country with open economy
costa rica debt collectionFirst a short look at Costa Rica. Costa Rica is a small country in Central America, with Caribbean and Pacific coastlines. The country has a population of almost five million people, a third of which live in the metropolitan area of and around the capital, San José. The official language is Spanish. Tourism, pharmaceuticals, financial outsourcing, and software development are the main industries on which the economy of Costa Rica is based. Costa Rica is an open economy with an amongst others a free trade agreement with the US, and favorable regulations and tax exemptions for foreign investors in the country.

Preparations: documentation and file building

amicable debt collection Costa RicaFor effective accounts receivable management and debt collection in Costa Rica later on, it is important to start with a good basis. In a worst case scenario, should you need to engage a debt collection agency or law firm in Costa Rica to respectively attempt to amicably collect a debt or start legal proceedings to enforce payment of overdue invoices, you will be subject to Costa Rican law. For that reason, you should put together a contract in Spanish, and the clauses of the contract should be in line with what is customary in Costa Rica. Also, the originals of the invoices issued to your client in Costa Rica should be signed by an authorized signatory of your client. To make sure that your documentation is in order, please always consult a Costa Rican lawyer specialized in international commerce and trade.

Effective accounts receivable management

As the period of limitations for invoices in Costa Rica is only a year starting as of the date of issuance of the invoice, it is important to have a swift and effective accounts receivable management. If debtor does not pay within the expiry date of the invoice, whether such date is after 30 or 60 days or otherwise, you should put debtor formally on notice again, in writing, in order to interrupt the statute of limitations for the invoices.

Focus on amicable debt collection in Costa Rica

In the event that your accounts receivable side has not collected on overdue invoices within a determined period, do not wait too long with engaging a debt collection agency that active in Costa Rica. This might be your domestic collection agency who has partners in Costa Rica, an international debt collection agency, or a local collection agency in Costa Rica. The debt collection agency should continue to interrupt the statute of limitations by formally requesting payment in writing from your debtor. In principle, the debt collection efforts should be focused on amicable collections, a settlement or a payment plan with the debtor in Costa Rica. Your debt collection agency should advise you on possibilities and options for amicable collections and together with you work out an amicable strategy in Costa Rica with a determined time line.

Legal proceedings in Costa Rica as an ultimate alternative

Costa Rica legal proceedingsIf subsequently, amicable debt collection does not lead to full payment, a settlement or a payment plan, your debt collection agency should advise you on legal options. As you would need to legally enforce the debt in Costa Rica, you will have to start legal proceedings in Costa Rica, as it is generally difficult or impossible to enforce a foreign verdict in Costa Rica. The size of the debt, the state of the documentation, and the financial position of the debtor determine whether it will make sense economically to go legal in Costa Rica or not. If at all possible to start legal proceedings, your debt collection agency’s local law firm will as of that moment take control of the case and will advise on costs and procedures.

Collecting a debt in Costa Rica: four steps to follow

In order to effectively collect debts in Costa Rica, you should follow the following steps: preparations include proper documentation and file building, effective accounts receivable management when invoicing or due and overdue, focus on amicable debt collection if debts remained unpaid, and as an ultimate alternative, if feasible, consider legal proceedings in Costa Rica.

This article does not provide a legal opinion nor a completely summary. When you do business in Costa Rica, make sure you engage a local advisor or law firm to make sure that your procedures and documentation or in proper shape.

Cobroamericas is a provider of international debt collection services and focuses on collections in Latin America and the Caribbean. If you are interested in learning more or discussing issues that rise when attempting to collect an international debt in Costa Rica, 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.

Collecting Offshore in the Caribbean and Central America

150614 Offshore 1It is not uncommon companies decide to run (part of) their business from an offshore location. The reasons can be tax-related, for asset protection, or can have a commercial or servicing background.

The businesses on offshore locations are often run by a trust company, a fiduciary services provider that acts as the local managing director and keeps the company in good standing.

So it can be that you closed your commercial deal in Europe, North America or South America, but you paper the deal with a company in Panama, Belize, or from a nation on a Caribbean island like the British Virgin Islands, Curacao, Cayman Islands, Antigua & Barbuda or the Bahamas. You will subsequently also invoice the company at the offshore location.

When the invoices become overdue, legally you will need to do your collection efforts at the location your contract partner is formally established, which is consequently also Panama, Belize, or the Caribbean nation.

Collecting from offshore locations in the Caribbean or Central America often cause serious difficulties:

  1. The location may be remote from the creditor’s perspective;
  2. The ultimate decision takers on the debtor’s side or not based at the location;
  3. Legal systems at the offshore location are unknown to the creditor;
  4. Information available on financial status, assets, and people involved is often limited or unavailable;
  5. All communication goes through a third party, the trust company, who only has limited responsibilities and obligations.

How can you optimize your collections and minimize overdue collections and eventual write offs in offshore locations in the Caribbean or Central America?

  1. Your paperwork should be in excellent shape. You know where your contract party is based, so make sure beforehand that the contracts, order forms, and invoicing complies with local standards so that, in case necessary, you have solid file for enforcement of claims;
  2. If legally possible in accordance with the laws and regulations of the jurisdictions involved, make sure that at least one of the beneficial owners or related companies who are not at the offshore location signs as guarantor in case of default on the side of your offshore-based client. It will give you the possibility to claim from several parties who may be in much more favorable jurisdictions to enforce overdue payments;
  3. The trust company, as the trusted third party who manages the offshore company, is the gatekeeper and a good and continuous relationship with the trust company is essential. If you do not manage to collect yourself then turn to a third party account receivables provider who does have the relationships in the trust business, as this often makes it easier to get through and get outstanding invoices paid.
  4. As a general rule, do not wait too long if you see payment behavior or communication is deteriorating. The longer you wait, the more difficult it becomes to collect. Sometimes trust company have even stepped down as managing director or companies are dissolved. International and local law give little to no legal options when that happens to claim the unpaid invoices from anyone else and then usually it becomes impossible to still collect.

For several reasons it can be a challenge to collect on your (overdue) invoices from companies that are based on offshore locations in the Caribbean or Central America. To optimize your collections and minimize overdue collections and eventual write offs you should make sure your paperwork is in excellent shape, that a guarantor signs off on payment obligations in case of default on the side of the offshore-based company, you have and maintain a good and continuous relationship with the trust company that manages the offshore company, and you do not wait too long with taking action if payment behavior and communication deteriorates.

If you are interested in learning more on the subject of debt collection in offshore locations in the Caribbean and Central-America (like Panama and Belize) let’s connect on Linked-In or follow me on Twitter.

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