Credit Risk Latin America: Four Services Providers for Small Foreign Businesses

Small foreign businesses run a certain credit risk when they do business in Latin America. If eventually, your counterpart does not pay, the financial impact on your company can be substantial and money and resources can be lost.

How can small foreign businesses protect themselves from such risks, when they enter the lucrative Latin American emerging markets? Here are four business partners you should consider as a small business owner.

Engage a Local Commercial Representative for Latin America

Latin america local representativeTo start with, engage a local representative for the Latin American market specialized in servicing foreign companies. The local representative can provide a local network of potential business partners and can help you enter the Latin American market. Also, it can assist with legal and administrative advice, do due diligence for you in Latin America, and connect you with reliable local lawyers, accountants and service providers. This might require a small initial investment by contracting a local company or individual representative on a retainer basis and eventually, you may want to consider establishing a local stronghold if the business requires so. It will on the long run bring you business, build up your local network and reputation, and limit potential financial and credit risks and therewith, save you money in the future.

An Insurance Company that provides Trade Credit Insurance

If international export or services is an important part of your business model, and Latin America is part of your foreign business expansion, you should contract an insurance company that provides credit insurance for international trade. There are several international insurance companies and government agencies that provide trade credit insurance for businesses that export internationally, and want to protect themselves from losses due to default, or insolvency or similar legal circumstances on the buyer’s side.

Escrow Arrangements for your Financial Transaction in Latin America

Latin America escrow credit riskDepending on the kind of products your deliver or services you provide, you may want to consider using an international escrow service provider to safeguard the financial transaction between your business partner in Latin America and yourself. This is how it works. An independent, third-party escrow manager will be engaged to open a segregated bank account, called the escrow account. Your business partner will pay a part of, or the full amount of the agreed purchase price for your products or services into the escrow account. Both parties will together with the escrow manager enter into an escrow agreement which will describe under which conditions the purchase price will be forwarded to yourself as provider. Such conditions will describe when delivery of the products or the services is considered delivery. Using an escrow protects you from the risk of a financial transaction in Latin America going wrong, whereby either your buyer can eventually not pay or you are the victim of intentional default or insolvency on the buyer’s end.

Account Receivables Management: a Collection Agency for Latin America

For your account receivables, make sure you use an international collection agency with a local partner in Latin America. They will be able to assist you with collections on outstanding and overdue invoices, and if necessary, provide debt collection services. This will eventually reduce your outstanding debt in Latin America to a minimum.

Small businesses that trade with Latin America run certain credit risks. As the owner of a small business with international ambitions aiming at Latin America, you should consider engaging as your business partners a local commercial representative, an insurance company that provides an international credit insurance, an escrow services provider to protect your position in a financial transaction in Latin America, and a collection agency for Latin America specialized in servicing foreign clients.

Cobroamericas is a boutique service providers offering debt collection, credit consultancy and company research information services to international companies doing business in Latin America and the Caribbean.

If you are a small business owner and are looking to expand business into  Latin America or the Caribbean, please feel free to reach out to us, 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.

Advertisements

5 aspects of company research in Latin America & the Caribbean

Whether you are at the verge of starting a business relationship with a Latin American or Caribbean company, or you have a claim on a business in Latin America or the Caribbean:  it is fundamental to gather the appropriate information about your business relationship.

You should always ask your business partner for basic information including corporate structure, tax numbers, commercial referrals and identification documents of its principals. This information may turn out to be vital later on in the business relationship, as you just never know when you start doing business if there will be concerns or claims, or if simply such information will be required in connection with for example credit insurances or logistic purposes.

In addition to what your business relationship provides from their own sources, you can do your own independent company research as part of your due diligence and compliance procedures for Latin America and the Caribbean.

There are companies specialized in providing B2B information research services, and servicing specifically international companies. Often such companies operate in account receivables or debt collection sectors.

Below is some of the information list we recommend each foreign company that does business in Latin America and the Caribbean, to search for.

The company’s corporate structure

What type of a company is your business relationship? Is it a sole proprietorship or is it an incorporated business with limited liability? When was the company founded? Where is the company registered and to which national and local jurisdiction(s) is your relationship subject? All very important information to determine the legal nature of your business relationship.

Assets and financial situation of the company

How much is the starting capital of your business relationship? Are there financial statements available or deposited at local registries or chambers of commerce? Which are the principal assets of the company? Does it possess real estate and is there any lien on such properties? Is there any information on your relationship’s payment behavior available? This information might be essential for providing credit lines and for any future claims on your business relationship in Latin America or the Caribbean.

Your business relationship’s commercial activities and operations

Which are the principal commercial activities of your business relationship? Where does these activities take place; which is or are the principal place(s) of business? Is there information available on providers or vendors? Does your business relationship represent any other foreign businesses? Are there commercial referrals or testimonials available concerning your business relationship? This information is essential to get a feel of performance of your relationship, before you enter into a deal or to compare with your experiences.

Executives and owners of the company

Who are the main executives of the company? And who are the owners, the shareholders or otherwise the principles? Do they have any links to other businesses and is there any information on them available, or referrals or testimonials? Be sure you gather this information as these people will be the ones who eventually take the decisions on your business relatonship’s end.

Legal information and law suits your business relationship is involved in

Is there any legal information available on your business relationship, like lawsuits? This information may provide you with indications on possible defaults, amongst others, or otherwise legal conflicts your business relationship in Latin America or the Caribbean is involved in.

We recommend international companies that do business in Latin America to assess the following information on (potential) business relationships in Latin America and the Caribbean: the corporate structure, assets and financial situation, commercial activities and operations, executives and owners, and legal information and law suits.

Cobroamericas is a boutique service providers offering debt collection, credit consultancy and company research information services to international companies doing business in Latin America and the Caribbean.

If you are interested in doing a company research in Latin America or 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.

 

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.

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.