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.

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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.

South America Debt Recovery: Solutions

In a previous post we discussed common issues one runs into while attempting to collect a debt in South America. Common issues include financial issues and insolvency, disputes and misunderstanding, incompatible paperwork, currency exchange controls, lack of leverage, communication, unprofessional behavior, and unfamiliarity.

In this post we will discuss some of the solutions to these issues.

Proper timing for accounts receivable management and debt collection

debt recovery south americaOne of the solutions for the issues mentioned for debt recovery in South America is proper timing for account receivables management and debt collection. Often, businesses decide to take action when it is too late: months pass by before follow up letters or emails are sent, or telephone calls are done to the client, and before the account is considered in default. It can even take years before a debt collection agency is engaged. In those years, debtor may have started to feel it can get away with not paying, or debtor may even be bankrupt or not exist anymore, which means in practice a certain write off of the outstanding debt. The golden rule of thumb in debt collection is that the longer you wait, the less likely it becomes you will collect your debt. For debt recovery in South America, the rules are no different. By sticking to proper timing in the entire accounts receivable management and collections process, you will increase the likelihood of recovering international debts in South America.

Engagement of a local debt collector in the debt recovery process

We discussed the engagement of local representatives before; even in the age of technology and where distances seemingly do not play a major role anymore, in order to successfully collect a debt in South America, it remains vital to engage a debt collection agency that has local presence, either through its own branches, or affiliates, partners or professional networks. Reasons are the leverage you may have towards debtor to take legal steps locally if necessary, but also the knowledge of your local debt collector of local business culture, habits and procedures. And in South America, where businesses are often aware of the apparent inaccessibility of local legal systems for foreign creditors, it is important that your debtor realizes that you work with local debt collection experts.

Synchronization of paperwork in line with local standards

debt recovery south america contractTo make sure that your paperwork (contract, order forms, order confirmations, invoicing) is in line with local standards in South America, not only means that you build up a legally proper file in the case of legal proceedings locally in South America. Most of all, it shows towards your client and possibly future debtor that you understanding the local habits and procedures. You will comply with what your client’s administration and due diligence requires, and it will give you the leverage of being taken seriously by your counterpart in South America.

Commercial involvement in debt recovery in South America

I realize this depends on the size of your business and your market volume in South America. However, as a matter of principle, if your business is located in North America, Europe or Asia, physically and culturally perhaps far away from your clients in South America, you should always consider having a local commercial representative. And in order to create a successful South American market for your business, your commercial representatives should be involved beyond looking for leads, prospects and clients. They should also assist in setting up proper collections procedures and paperwork in line with local requirements. Commercial representation and credit management for your business in South America should go hand in hand.

Debt recovery in South America

Solutions for debt recovery issues in South America may include: proper timing for accounts receivable management and collections, engagement of a local debt collector in the debt recovery process, synchronization of paperwork in line with local standards, and commercial involvement in debt recovery in South America.

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

South America Commercial Debt Recovery: Issues

What are the typical issues companies encounter when attempting to collect an international debt from a business in South America?

Below we list eight issues we deal with in commercial debt recovery in daily practice.

Financial issues & insolvency

South America debt recovery insolvency

One of the of main issues commercial debt recovery in South America may run into is financial problems. Businesses are in bad weather, caused by economic micro- or macro factors, and cannot comply with their payment obligations. Sometimes the issue is insolvency on the debtor’s end. 

Disputes & misunderstanding

Often a reason for overdue payments in South America is a dispute or misunderstanding regarding the commercial deal or the services provided or products delivered. Reality does not match expectations. The amounts claimed during debt recovery are disputed or there is a misunderstanding as to the amount actually payable.

Incompatible paperwork

South America debt recovery documents

In some cases, the paperwork between client and the debtor in South America is incompatible. At least from debtor’s point of view, payment cannot be done as debtor requires other or additional paperwork in order to comply with local legal or accountancy rules and remit payment. Such paperwork can include the contract, order forms, order confirmations and invoices. 

Currency exchange controls

In some countries, debt recovery in South America can be challenged by foreign currency exchange controls. In some countries, like Brazil, international payments are subject to prior controls which can delay or obstruct payment. From other countries, notoriously Argentina and Venezuela (please see previous post about Venezuela),  it has become difficult or impossible to transfer monies out of the country. For more info on foreign currency exchange controls in South America, please click here.

Lack of leverage

International debt recovery gains strength with the leverage the collector and his or her client has. Leverage can be a commercial relationship the debtor still has an interest in to maintain or re-establish, the realistic option of enforcing payment legally if no payment is done or a payment agreement is not reached amicably, or the reputation debtor wants to safeguard. If there no such leverage, because debtor is not interested in re-establishing the commercial relationship or going legal is in reality, because of the local circumstances or an incomplete file, not an alternative, it can become an issue to collect an international debt in South America.

Communication

South America debt recovery communication

Often communication is an issue for commercial debt recovery in South America. Without knowledge of the Spanish language almost all over South America, or particularly Portuguese in Brazil, it is difficult and in most cases impossible to attempt debt collection in South America. Also the distance (physical or time zone wise) can be a major issue for debt recovery from a business in South America.  

Unprofessional behavior

Sometimes collectors and their clients are confronted with unprofessional behavior of businesses in South America. Although unprofessional behavior in business takes place all over the world, the level of informality in business in South America sadly enough regularly provokes unprofessional behavior and payment avoidance towards creditors abroad.

Unfamiliarity

An issue for creditors or their collectors can be the unfamiliarity with South America as a territory. Its infrastructure, (business) culture and collection alternatives are often unknown to businesses outside South America.

Debt recovery in South America

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

Debt Collection Contributes To Latin American Economies

Professional debt collection services can contribute to the economies of Latin America. It is true, the overall quality of debt collection services will need to improve, and fair practices need to be determined and honored, and there may still be quite a long way to go. But there is definitely an opportunity for growth and professionalization of debt collection services and with that, the possibilities to contribute to improvements to Latin American economies.

Below eight reasons how debt collection contributes to improvement of the economies in Latin America.

Debt collection improves payment behavior in Latin America

A professional debt collection industry improves payment behavior among individuals and business. And so would a professional debt collection industry do in Latin America. Exceptions notwithstanding, payment behavior is in general poor in Latin America, both considering domestic and foreign debt. This is partly due to the absence of professional collection procedures within companies, the absence of debt collection regulations and laws and the hassle that legal proceedings mean in the majority of the countries of Latin America (click here for more info on legal proceedings in Latin America): all elements required by properly functioning professional debt collection services.

Debt collection reduces Latin American bad debt

latin america debt collectionA professional debt collection industry would mean more collections on overdue invoices for companies in Latin America and hence it would imply a reduction in bad debt, consumer debt and company debt alike. This would improve cash flow for businesses substantially and contribute to production, investment and repayment of debt for Latin American businesses.

Debt collection professionalizes procedures within Latin American businesses

A professional debt collection industry would contribute to professionalizing collection procedures within Latin American businesses. This results would not only be increasing collections on due and overdue invoices, reducing the average days sales outstanding (DSO) it would also boost general professionalization of business operations and procedures and create a healthy balance between deal making / sales / relationship management and credit management / account receivables management.  

Debt collection generate income for Latin American businesses

Debt collection means generating income for Latin American businesses. Debt Collection increases collections on overdue invoice and generates direct additional cash flow, hence an increase in income.

Professional debt collection services create business and jobs in Latin America

latin america debt collection jobsA professional debt collection industry creates jobs in Latin America. A growing debt collection industry means more companies dedicating to debt collection and more people that will need to be hired to fulfill the job.

Professional debt collection services contribute to formalizing collection rules

Debt Collection often shows the upsides and the downsides of collecting on overdue invoices. Generally, once the debt collection industry professionalizes, it will contribute to formalizing collection rules. On the other hand, collections rules will help regulating the debt collection business in Latin America. In short, to create fair debt collection practices.

Debt collection services help determine consumer rights and obligations

latin america debt collection consumer rightsDebt Collection, whether that is amicable debt collection or legal deb collection, will push for determining what consumer rights and obligations are. Bad behavior by unprofessional debt collection agencies will eventually set the terms for consumer rights. Protection of creditors rights, in an economy with professional debt collection services often represented by debt collection agencies, will set the consumer obligations.

Debt collection improves international credibility of Latin American businesses

The presence of a professional and reliable debt collection industry, debt collection regulations, creditors rights and obligations, consumer rights and obligations, functioning legal systems to enforce payment of bad debt: it will all improve the credibility and prestige of Latin American economies and businesses, and hence positively affect Latin America’s international trade, credit ratings and business opportunities for credit insurances and credit lines.

How does debt collection contribute to Latin American economies?

Debt collection can contribute to economic growth in Latin America as it potentially improves payment behavior, reduces bad debt, it professionalizes collection procedures for businesses, it generates income for businesses, a mature debt collection industry creates business and jobs, it helps formalizing national collection rules, a responsible and mature debt collection industry helps improving consumer rights and obligations, it improves credibility and prestige of national industry and therewith contributes to transnational trade.

If you are interested in learning more on the subject of debt collection in Latin America 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.

Debt Collection in Latin America: Effects of Currency Devaluation

150913 OM_LatinAmer_Outlook_640x360-640x360In recent weeks, under the influence of international and local economic trends, several of Latin America’s currencies have devaluated substantially as against the US Dollar. Take the Brazilian Real: did you still get about 3 Reais for a Dollar, today, September 14, it is almost 4 Reais for a Dollar.

The Mexican Peso shows a similar trend: mids of June, it was about 15.30 Pesos for a Dollar, whereas at the end of August the exchange rate even exceeded 17 Pesos for a Dollar.

It is not only hurting trade, it also affects debt collection in Latin America, from individuals and businesses alike. Here are five negative effects of currency devaluation on collections in Latin America.

  1. The first effect might be the most obvious: existing foreign debt for Latin American Individuals and businesses, often incurred in US Dollars, become more expensive as the amount of the debt converted to the local currency, i.e. Mexican Peso in Mexico, and Brazilian Real in Brazil, increases. It means that individuals and business may not be able to anymore pay at the same pace and in the same quantities.
  1. A second effect is especially for those companies that primarily do business abroad and invoices are predominantly in US Dollar or other foreign currencies: individuals and business may not be able anymore to pay (all) due invoices, which as a result become overdue, and hence contribute to an increase in outstanding foreign debt.
  1. A popular economic tool for governments in Latin America is, in times of pressure on currency, and in an attempt to protect national economies and currencies, to introduce foreign currency controls, putting up hurdles for local individuals and businesses to buy foreign currencies like the US Dollar. This makes it more complicated, and more costly, to pay foreign invoices and debt, causing (a) delays in payment of, and (b) increase of outstanding foreign debt. Please check out some of our previous posts about Currency Exchange Controls. Some of the most notorious examples in Latin America of effects are seen in Venezuela, Argentina and Brazil.
  1. As soon as individuals and businesses cannot pay debts and invoices become overdue, and individuals and businesses in Latin America start to increasingly default, there will be a pressure on the commercial relationship between individuals and businesses, and business relationships and international prestige will be negatively affected.
  1. If Latin American individuals and businesses cannot pay debts anymore or it becomes harder to collect, credit insurance companies and foreign lenders might become more conservative as to respectively insuring and lending against business in Latin America, which negatively affects trade with Latin America and economic growth and business activities.

150913 Money_Transfer_-_G_2163621cIronically, these effects might increase international debt collection business in Latin America. However, on the other hand, it will become harder to actually successfully collect outstanding debts in Latin America become of less resources and more obstacles to pay.

If you are interested in learning more on the subject of currency politics and debt collection in Latin America 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.

Chile: The Most Debt Collection Friendly Country Of Latin America?

Chile is in several aspects an exception in Latin America. Chile has been politically and economically stable for decades. It is perhaps also the only Latin American country which has truly successfully countered extreme poverty. Its capital, Santiago de Chile, is a start-up hub and is considered one of the most investor friendly cities in Latin America.

From experience it also seems to be the most debt collection friendly country in Latin America. What are the reasons behind this?

The first reason is that the country has a truly open economy for foreign trade and investment. Economics politics are focused on attracting foreign businesses and investors and Chilean businesses are used to international commercial relationships. Reputation and prestige in that respect contribute to creating a climate of positive payment behavior.

150906 Chile 5A next reason is that Chile has liberal monetary politics. The country doesn’t have foreign exchange controls like for example Argentina and Brazil, or for that matter, the most notorious country in South America, Venezuela. International payments are not subject to extraordinary foreign currency exchange restrictions which favorite debt collection success for foreign creditors considerably.

The next reason might be somewhat subjective, but Chilean businesses do seem to have a culture of a more positive payment behavior compared to neighboring countries like Brazil or other large Latin American economies like Mexico. This generally makes it easier to negotiate payment of debt or overdue invoices.

Chile’s middle class has grown substantially in the last few decades. And its poverty level has diminished. Because of that, the average salaries and thus purchase power of the population have improved and hence financial sources to pay foreign consumer debt or business debt have been increasing. This is obviously positive for foreign creditors who are looking to collect in Chile.

150906 Chile 2Unlike the majority of other countries in Latin America, Chile is relatively well accessible. It has a decent infrastructure and it doesn’t have politically troubled areas and hence distinguishes itself from amongst others Mexico, Brazil, Argentina, Colombia and several countries in Central America.

The next reason might be subject to personal opinion and may heavily depend on one’s point of view, but Chile’s judicial system is relatively understandable for foreign businesses and is certainly more accessible for foreign creditors than the judicial systems of the majority of the other countries in Latin America, like Brazil, Argentina, Colombia, Mexico, Venezuela, to just mention the most notorious. This gives foreign creditor the necessary leverage to indeed go legal if extrajudicial debt collection is not successful, and Chilean businesses or individuals realizing that might push them to pay amicably or settle.

Chile is in several ways an exception which also seems to be the case with respect to debt collection on behalf of foreign creditors. Reasons include the fact that Chile is an open economy, it does not have extraordinary foreign currency controls, Chile has a culture of more positive payment behavior than other countries in Latin America, the purchase power of the population has increased, the country is relatively well accessible, and Chile’s judicial system is quite understandable for foreign creditors.

If you are interested in learning more on the subject of debt collection in Chile or Latin America please connect on Linked-In or follow me on Twitter.

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