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
First 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
For 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
If 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.