Credit Management for Latin America: Four Areas To Focus On

One of the fields companies should focus on when they do business in Latin America is to have a region-focused credit management. Here are four areas each credit management team should focus on when their companies do business in Latin America.

Due Diligence regarding Businesses in Latin America

The moment business relationships are built up in Latin America, and before actually closing deals, companies should do proper due diligence to make sure they are working with reliable business. Know your client, learn about their financial behavior, be aware of local economic, social and political circumstances of the place of business of your potential business partner: a good start means that potential issues and loss of money or business later on may be limited to a minimum. Have a look at this post if you would like to know more about due diligence in Latin America.

Account Receivables Management for Latin America

Latin America account receivablesOnce business operations in Latin America begin and your company starts closing deals, it is essential to have an account receivables management designed specifically for Latin America. To do so, cultural aspects, language requirements, knowledge of local socio-economic circumstances, currency controls, and potential legal matters should be taken into account. Design a strict account receivables management cycle, including regular email follow ups and phone calls, and be prepared to be flexible where necessary. It is important to closely cooperate with your sales or relationship management team, and local representatives of your company in Latin America, if any, depending on the size of the business. Sometimes a proper solution for companies may be to outsource (part of) the account receivables management in Latin America to specialized providers, who speak the languages, operate in the proper timezones and under local cultures and legal circumstances.

Debt Collection for Overdue Invoices in Latin America

Latin America collecting debtFor an effective credit management, it is important to have your debt collection options ready once the cycle of account receivables management has finished and there are overdue invoices payable by clients in Latin America. You should build up relationships with debt collection agencies or partners in Latin America who can assist you promptly once needed. If your company does substantial business in Latin America and there is continuous volume of deals, clients and eventually non-paying clients – debtors – you should have a pre-negotiated deal in place with an international debt collection agency with either a branch or partners in Latin America, to whom periodically cases are handed to collect the outstanding debts. If you would like to learn more about debt collection in Latin America, please have a look at our selection of blog posts about this subject by clicking here.

Latin America: Legal Support

Working out a commercial deal with a client in Latin America, (potential) legal issues that come up during the business relationship, or legal assistance during the process of receiving payment or collecting outstanding debts: for all these matters, it is recommendable to establish a relationship with an international law firm in Latin America, or several law firms locally in Latin America. They may assist your company from the very beginning of business operations in Latin America and prevent future issues and potential costs or loss of money and business. Please click here if you would like to know more about legal proceedings in Latin America.

Make sure you set up your credit management for your Latin American business operations properly by focusing on the following four areas: due diligence, account receivables management, debt collection and legal support.

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 in connection with credit management for Latin America, or in connection with international debt collection in Latin America and 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 Latin America? Focus on Settlement!

It is often a challenge for foreign companies (North American, European and Asian businesses alike) to collect a debt in Latin America.

One of the most efficient and effective alternatives in debt collection in Latin America, is negotiating a settlement between creditor and debtor.

A settlement deal contains either (i) a one-time payment, with a discount, as full and final settlement, (i) a payment plan with periodic payments, or (iii) a compensation which could be return of materials or products, or otherwise; or a combination of the three options mentioned.

We strongly recommend foreign businesses to consider looking for settlement deals when they have overdue invoices to collect from clients in Latin America.

Here is why.

Getting your payment faster through a settlement deal

Closing a settlement deal with a client who owes you payment for overdue invoices will result in faster payment; either as a full and final settlement payment or through a payment plan reached. Continuing to chase your debtor without looking for a settlement may take substantially longer, let alone looking for the legal alternative, which may take years before there is a verdict and which is a far from tempting alternative as we will explain below.

 Settlement in debt collection to avoid legal

latin america legal settlementBy looking for a settlement deal, you vow by an amicable solution and thus legal action is avoided. If the debtor does not pay its overdue invoices and legal is the only alternative left, in Latin America the creditor will need to start legal proceedings locally (so in Mexico, Colombia, Chile, Brazil; wherever your debtor is located). Generally, legal proceedings in Latin America are very unattractive (they are costly, proceedings are extraordinary long and often incomprehensible to foreign business, and sometimes legal systems are just frankly dysfunctional) or practically impossible (the paperwork is not compatible with local regulations and legislation, or the claim lacks the requirements to effectively enforce legally). Any alternative to avoid legal action should be taken very seriously. And looking for a settlement is a great alternative to get paid and avoid legal.

Settling debts can be a commercial trigger

latin america settlement dealNegotiating a settlement means that creditor and debtor are on speaking terms. It keeps the door open for continuation of the commercial relationship and often it can even boost recovery or reinforcement of the commercial relationship. This is especially the case once a settlement deal is reached. Through settlement negotiations, apart from working on a deal to collect your money, you also work on the commercial relationship.

Settlements are an efficient and effective method for debt collection in Latin America. The advantages are that closing a settlement deal with the debtor results in faster payments, negotiating and reaching a settlement means avoiding legal proceedings, and finally, the settlement approach can be a commercial trigger and help recovering or reinforcing the relationship with your client.

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 in connection with a settlement approach for 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.

Due Diligence In Latin America: Prior To Debt Collection

The issues we deal with in international debt collection in Latin America often could have been flagged, avoided or dealt with before companies actually started to do business.

due diligence procedure Latin AmericaHaving proper due diligence and compliance procedures in place for your international operations in general, and in our context of Latin American debt collection, in particular with respect to business transactions in Latin America is key to substantially reducing the financial risk and avoiding overdue accounts at a later stage.

Due Diligence in Latin America may seem challenging

For foreign businesses it might be challenging to perform due diligence and compliance procedures in Latin America. The reasons might be:

  1. Lack of access to information and transparency in Latin America;
  2. Resistance from local business partners in Latin America;
  3. Cultural differences and other languages spoken between your company and your local business partner;
  4. Limited in-house knowledge on Latin American business culture, languages, geography, socio-economic and political circumstances, amongst others;
  5. The often informal nature of economy and business in Latin America;

What does Due Diligence in Latin America mean?

Before starting to do business in Latin America, and to mitigate financial risk, reduce overdue accounts later on and hence optimize positive economic results, it is important for foreign businesses to:

  1. Understand the socio-economic reality of the Latin American country or countries you do business in;
  2. Be aware of political circumstances and potential (in)stability in the Latin American country or countries your business partners are based in;
  3. Understand local legal and administrative requirements and regulations your business sector is subject to, locally in Latin America;
  4. Know your client: get familiar, inside-out, with the company you do business with – its officers and their backgrounds and connections, the financial side, assets, business activities and performance and local clients;

Due Diligence in Latin America: what the focus on

So what to focus on when you do your due diligence in Latin America?

Here is a check list you can follow:

  1. How does your business and your local business partner comply with local regulations and which local regulations are applicable to your business and your local partner?
  2. Financial due diligence: what is your local business partner’s financial situation and is it currently in a position to pay its financial obligations, and, based on future development, will it continue to be so?
  3. Accounting due diligence: how does your business partner comply with local and international accounting standards?
  4. Legal due diligence: what is your exposure as to contracts entered into with your local partner and other parties, and potential litigation?
  5. Documentation assessment: in connection with the above, which documents are required locally and international to complete the business transaction, collect on (overdue) invoices and, in the worst case scenario, legally enforce payment of overdue invoices, locally? Documents that might be taken in consideration are contracts, order forms and confirmation, shipping bills, invoices, amongst others;
  6. Judicial check: has your business partner had any warning letters, fines, civil penalties, audits or other enforcement actions, or is your business partner, or any of its officers, otherwise involved in legal actions or lawsuits?
  7. Background check: get to know as much as possible about your business partner and its officers, and their backgrounds and connections, (business) activities, performance and local clients and partners;
  8. Local partners and specialists: make sure you engage the right local partners and specialists who can help you with the due diligence and compliance, and otherwise any accounting, administrative or legal issues that might come up. Such partners and specialists could be business advisors, law firms or local representatives.

Reduce the need for Debt Collection in Latin America: do your Due Diligence!

Due Diligence Latin AmericaIn order to avoid debt collection issues later on, it is important for foreign business to do proper due diligence and compliance in Latin America before closing business transactions. The objective is to understand the socio-economic reality of the Latin American country you do business in, its political environment, local legal and administrative requirements and regulations, and to know your client inside-out.

This post does not provide a legal opinion nor a completely summary in any way. When you do business in Latin America, make sure you engage local advisors, partners and law firms to make sure that your due diligence and compliance procedures are in proper shape for your business operations and transactions in Latin America.

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 in connection due diligence and compliance procedures in Latin America, potentially in connection with international debt collection in Latin America and 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.

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.

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.