B2B collections in LATAM: negotiate, mediate, settle

If you are dealing with B2B collections in Latin America, you may run into nonpaying debtors, commercial or financial issues the debtor may have, and local situations in Latin America that may considerably complicate succesfull collection.

In order to deal with such situations, change your mindset to negotiations, mediation and settlement.

Negotiations in B2B collections in Latin America

My advice is to be prepared to negotiate. A trigger to negotiate is often the lack of alternatives. Debtors may otherwise take the stand that they will not pay, and the only way to enforce payment, is to start legal proceedings. The latter is a rather unattractive (and sometimes, practically impossible) alternative. This will be discussed in more detail below. Please read the following articles about negotiation in international debt collection and settlement negotiations in Latin America for more insight.

Mediation in B2B collections in Latin America

Another alternative is to look for mediation in Latin America, especially if the amount owed is substantial. An independent third party will in such case be appointed as mediator between creditor and debtor. For more thoughts on mediation in international debt collection, please read this previous article.

Looking for a settlement

The aim of negotiations and mediation with the debtor in Latin America is reaching an amicable settlement. An agreement between creditor and debtor that both parties can live with. A settlement agreement may consist of a one-time payment as full and final settlement, or a payment plan, or a combination. Sometimes, continuation of the commercial relationship between the parties is also agreed, which can be continuation of import / export of delivery of services, whereby for each future payment (usually on a pre-payment basis) part goes towards payment of the debt.

Avoid legal proceedings in Latin America

The recommendation is to at all times avoid legal proceedings in Latin America. Generally speaking, as legal systems and requirements between countries differ, sometimes substantially, cross border files are not sufficiently solid in order to enforce payment by means of legal proceedings. Also, legal may be expensive and with little likelihood to collect, the creditor may end up with high legal bills which cannot be recovered from the counter party, the debtor.

In dealing with a debtor in Latin America, be prepared to negotiate, to mediate, and to settle. Avoid legal proceedings because of its complexity and costs.

If you are doing international business in Latin America and you are interested in learning more on B2B collections, please reach out to Cobroamericas, on Linked-In or follow us on Twitter.

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

David Zannoni

Debt Collection for Commercial Transactions in Latin America

To collect overdue payments owed in connection with a commercial transaction in Latin America, it is important to follow a step-by-step approach. Below are the stages of debt collection the foreign creditor should take into consideration.

Amicable debt collection for commercial transactions

The first step is to attempt to collect the debt amicably, generally on a contingency basis. This means that the foreign creditor will contract a debt collection agency. The creditor does not run any financial risk, as the agency will only charge commission in case of success. For the debtor, the involvement of a debt collector may imply to push needed towards a solution, which is full payment or a payment plan. Usually, a debt collection agency takes a couple of months to attempt to obtain an amicable solution for the overdue payment on the commercial transaction.

Mediation in case of disputes

If amicable collections do not achieve payment or otherwise lead to a settlement, a pre-legal option could be mediation. If there is contact with the debtor but debtor does not pay the overdue amount, either because there is a dispute with respect to the quality of products or services delivered by the creditor in connection with the commercial transaction, there might be an interest on both sides to mediate and look for an alternative settlement. This may especially be the case if both parties have a continuous commercial relationship which they desire to maintain.

Claim assessment for the foreign creditor

In case amicable debt collection and if applicable, mediation do not result in payment, a payment plan or otherwise a settlement agreement between creditor and debtor, it is important to assess the claim for potential legal steps. At this stage, the presence and quality of a contract, order forms, confirmations, correspondence between the parties, and invoices regarding the commercial transaction is vital to determine legal potential.

Credit registration in Latin America

As a step in between pre-legal and legal, and to put pressure on the debtor, in some countries in Latin America it is possible to formally register the foreign debt at a public, semi-public or private watch dog. This can be a trigger for the debtor to pay or to come (or return) to the negotiation table.

Legal proceedings to enforce payment

Should credit registration not work either, or not be a possibility, and should the claim be solid enough to enforce payment of the overdue amount legally, then the final alternative to collect a debt on behalf of a foreign creditor is to start legal proceedings against the debtor. Legal proceedings should be started in the country of residence of the debtor. In addition to an assessment whether the claim is solid, creditor must also look if it is worth proceeding from a cost-perspective.

The stages a foreign creditor should follow to collect an overdue payment on a commercial transaction in Latin America are: amicable debt collection, mediation, claim assessment, credit registration, and legal proceedings.

David Zannoni

If you are a foreign creditor and interested in learning more on debt collection in Latin America for commercial transactions, please reach out to Cobroamericas, on Linked-In or follow us on Twitter.

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

Four questions before going legal in Latin American debt collection

Collecting a debt in Latin America may be a complicated and slow process. In the amicable phase, reaching a debtor, establishing contact, negotiating a deal and getting payments going may be generally enough. In several cases, amicably one will not be able to collect an outstanding debt.

Naturally, the next step is to try to enforce payment of the debt through legal proceedings. However, and as already indicate before in our blog posts, in general one should be cautious and conservative when it comes down to starting a law suit in the attempt to collect a debt Latin America.

First, all possible amicable attempts must really be completely exhausted before even starting to consider legal proceedings. If amicable collections have not been successful, and no payment was done, or no payment plan could be agreed on, or the debt was not otherwise settled or compensated, then legal options for collections in Latin America should be assessed.

And when considering legal debt collection options in Latin America, please ask yourself the following four questions.

Is the debt large enough to justify legal proceedings?

The size of the claim is the first thing to look at. The larger the amount of the claim, the more likely it is that considering legal proceedings is justifiable. To answer this question and to determine whether the claimed amount is worth it or not to go legal, you must look at what the value of the claim is for your organization, as you will have to continue dedicate time and resources to the attempts to collect.

Does the location of the debtor make it possible to go legal?

Next item on the list is the location of the debtor. Where is your debtor based? As that is the place where you will start the law suit if you decide to try to collect the debt through legal proceedings. Whether or not a location (country, region or city) is accessible in practice for foreign creditors, varies substantially in Latin America. Currently, for example Chile and several of the Caribbean island nations have accessible legal systems. In other countries, because of a variety of reasons ranging from economical to political, trying to collect a foreign claim, is substantially more complicated (examples are Colombia, Brazil, or Mexico), and other countries are at this moment, practically impossible for foreign creditors (Venezuela is a notorious example).

Will your debtor be able to pay the debt, if legal is successful?

The next step is to determine the reason; why has your debtor not paid? Are there financial issues? Or is the claim disputed by debtor? Is debtor currently in a situation which makes it under any circumstances impossible to pay, like bankruptcy or similar? It is essential to have an indication whether or not your debtor will actually be able to pay the debt, even if you win a law suit and obtain a legal title to collect.

Do legal proceedings justify the costs involved?

And finally, but very importantly, you should have a clear picture as to the costs involved of legal proceedings in Latin America. Now again, this may differ greatly between countries, regions and cities. What also affects the potential legal costs are the kind of legal proceedings, which may depend on age of invoices or available documentation. As a rule of thumb, going legal in Latin America is expensive, often too expensive looking at the amounts to be collected and the likelihood this will actually happen may be low.

If the answer to all four questions above is yes, then you should indeed consider trying to go legal to enforce payment of your claim in Latin America.

However, if the answer to even only one of the questions above is no, do not consider going legal, write the debt off as unrecoverable, and focus your energy on other business.

David Zannoni

If you are a foreign creditor and interested in learning more about legal debt collection in Latin America, please reach out to Cobroamericas, on Linked-In or follow us on Twitter.

To participate in conversations 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

Once 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

For 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.

Ten Reasons Why to Focus on Amicable Debt Collection in Latin America and the Caribbean

This post is about why creditors should not only think twice, but three times before evening considering legal proceedings in Latin America or the Caribbean in order to enforce a claim. Commercial and consumer debts alike.

Here are ten reasons why.

1. Different speed

In Latin America and the Caribbean, things can be slow. Really slow. Patience is essential. Give an amicable solution a chance, even if it can take (a lot) longer than what you would accept back home. And legal is not the solution if you want things to go faster – legal proceedings may even slow things further down, and can take forever (years).

2. Another socio-economic reality

Socio-economic reality is for many people different in Latin America. Yes, in some countries like for example Brazil, Mexico, Colombia and Peru, economy has grown and continues growing. And yes, there is an ever growing middle class all over the continent, which means substantial groups of people have started to earn more money and thus have more spending power. However, the reality for the majority of the people is still: no access to proper education, difficulties finding a job, and jobs are generally not well paid. A large part of the population still has a lot less to spend than people in a comparable social class in Europe or North America. It means that payment plans are longer and monthly pay off installments may be (substantially) lower. Legal proceedings do not change this reality.

3. High costs

Legal proceedings are generally expensive in Latin America and the Caribbean. Legal costs can increase substantially as legal proceedings go on. Often it is economically not worth it to go legal as costs and expenses can easily supersede whatever the claim is or what can eventually be collected. And if at the end of the road debtor cannot pay, the costs are for the creditor.

4. Inefficient legal systems

An overall problem is the inefficiency of legal systems in Latin America and the Caribbean. It causes that legal procedures can take very long (years) before a verdict is reached, the outcome is often unpredictable, and requirements to (successfully) proceed may be unrealistic. For these reasons legal proceedings may require a considerable investment in terms of time and resources which may not justify what can eventually be collected.

5. Informal economies

Many businesses and employees are active in the so called “informal economy”. Companies that are not or hardly officially registered, people that do business without invoicing or maintaining a proper administration, employees that receive salaries which officially do not exist. As for consumers, they may in practice not live where they are registered, or they are not registered at all. Registration at a chamber of commerce is often not mandatory, and / or registration is not up to date. It is virtually impossible to legally claim anything from a company or person that or whose business or salary does officially not exist.

6. Political situation

Several countries or regions within Latin America deal to a larger or lesser extent with political issues. Foreign trade-unfriendly regimes, social unrest, or safety issues, these may in practice all lead or contribute to a nonfunctional legal system and hence enforceability of claims in legal proceedings. There may be no possibility of enforcing anything legally at a local court because there is no court available or functioning, or there may be no bailiff who can or wants to execute an enforcement order if a verdict is obtained.

7. Remoteness

Often your business partners are probably based in the major cities, like Mexico City, Buenos Aires, or Sao Paulo. But what if your debtor is based in the countryside of Oaxaca? Or your debtor is a food production company based far inside the Amazons? Or the Andes? In reality it means that serious legal options may be as remote as the area your debtor is in. The infrastructure is simply not there. And no bailiff or lawyer would go there!

8. Limited access to information

Some of the countries in Latin America, like for example financial offshore centers, have laws protecting business information. This makes it very hard to assess whether it makes sense to go legal, if a company has any assets, who is actually running the company, and so forth. And essentially without knowing your debtor it might be too risky financially to start legal proceedings.

9. Incompetent courts

If the debt was incurred outside the country debtor is residing in, and the nature of the debt (product or service, the corresponding paperwork, the language in which the contract or deal was closed, the socio-economic circumstances in which the debt came in to existence in the first place) is considerably different from the reality in debtor’s country, a local court may turn out to be incompetent – not in a position to rule. This means that effectively legal proceedings may not lead to any verdict at all.

10. Strict requirements for law suits

Some of the countries in Latin America and the Caribbean have strict requirements as to administration held, invoicing, and contracts to be able to legally enforce a claim. Sometimes, the lack of an official stamp on an invoice, or a certified follow up letter, means that an invoice is not officially recognized or may well be expired already by law, making legal proceedings practically impossible.

Different speed, another socio-economic reality, high costs, inefficient legal systems, informal economies, political situation, remoteness, limited access to information, incompetent courts, and strict requirements for law suits are reasons for creditors to avoid legal proceedings to enforce claims in Latin America and the Caribbean as much as possible.

Amicable collections are the way to go; negotiations where necessary, using leverage where possible, and always keeping in mind the balance between what can possibly be achieved and collected, and what would be the price one pays for that.

This post represents the opinion of the author and is an attempt to give a general impression. Circumstances and reality may different substantially from country to country.

If you are interested in learning more about amicable debt collection or legal proceedings in Latin America and the Caribbean 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.

Legal Proceedings: Enforcing US Judgments in Mexico

This article focuses on legal judgments obtained in the US for which enforcement is sought in Mexico. Although the situation is specific there may be similarities with other countries in the region or anywhere else in the world.

I have got the question a couple of times over the last few weeks. Are judgments obtained in the US enforceable in Mexico?

Well, not directly. But yes, if confirmed by a Mexican court, in principle US legal judgments can be enforced and executed in Mexico.

Mexican law provides for Mexican courts to recognize and enforce US judgments in Mexico (based on the North American Free Trade Agreement). However, there is no treaty in place between the US and Mexico as to establish the legal situation of judgments between the two countries. This means that the claimant in that respect fully depends on Mexican law. Mexican courts can recognize US judgments but, legally spoken, they are not obliged to do so.

In order to enforce a US judgment in Mexico the applicable court in the US will have to issue a rogatory letter to the applicable court in the Mexican state (or the Federal District, as applicable) in which debtor resides. The letter must rule out appeal. Also, the debtor must have been personally served with the summon and complaint according to US law. Then the domestication proceedings start, in which the file will need to be translated to Spanish, and then the case is officially filed with the Mexican court. Provided that the Mexican court indeed recognizes the US judgment, all possibilities of enforcements as would otherwise apply to a full Mexican case will apply.

Subsequently, the success of, and decision to proceed to, enforcement and execution of the judgment in Mexico depends heavily on the circumstances: the size of the claim, does debtor have income or assets and will he or she be able to pay; and the location and background of the debtor (which may determine the willingness or not of a bailiff to execute the judgment).

If you are interested in learning more on topics about legal proceedings in international debt collection 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.

Six Challenges For Starting Legal Proceedings in Latin America

In a globalizing world we do more international business than ever before. Economic growth takes place in what we used to call the developing countries.

Focusing on Latin America, countries like Brazil and Mexico, but in the last few years certainly also for example Colombia, Peru, Chile and Panama, have gone through significant growth periods attracting foreign businesses and investments.

But what if you are based in North America or Europe and you do volume business in one of these countries, or you closed a very important business deal, and your client is not paying? What if the deal is not covered under your credit insurance, your client passed through all internal due diligence and compliance procedures and know your client policies, and amicable debt collection and interferences of a debt collection agency, local representatives, or even a law firm do not result in payment of the outstanding debt?

Naturally the next step would be considering legal proceedings to rightfully enforce payment of the goods you delivered or the services you rendered.

You have to be aware though that legal proceedings in connection with debt collection in Latin America can be challenging.

Although each country has its own legal system and very particular local circumstances, and countries differ considerably one from another, I have defined what I feel can generally be considered as the Six Challenges For Starting Legal Proceedings in Latin America in connection with debt collection.

1. Unknown territory

First of al, for many people outside Latin America, the territory is unknown. People do not know how the legal systems actually work. You may also not know where to start if you want to legally force your client to pay, and which company or firm to contract. Latin America sounds far away, your do not speak the language and you may not even know where you client is exactly based.

2. Complicated legal systems

But even if you are familiar with the territory, often the legal systems are complicated enough to make legal proceedings far from straightforward. There can be various types of proceedings, several courts and local jurisdictions, and various stages and appeal procedures within legal proceedings.

3. Substantial legal costs

Often legal proceedings are expensive. Minimum amounts for which it makes sense economically in the first place to start legal proceedings may be a lot higher than “back home” (although I realize here there is a big difference between for example the United States en many countries in Europe). And there may be certain costs you incur which you cannot claim back from the debtor.

4. Inefficient legal system

Apart from complicated, legal systems tend to be, to say it in a politically correct way, inefficient. Although the law may be on your side, the way the “system” works in practice because of political or social reasons (I mention corruption, social disruption and foreign currency exchange restrictions as some obvious examples), can still make it a complicated job to actually enforce your rights to receive payment.

5. Incompatibility

This is one we may not immediately think of, but which in practice often cause unpleasant surprises. The way you put together paperwork with your client, the way you invoiced or the jurisdiction your business deal is subject to, may not work legally in the country of your client and therefore turn out to be irrelevant. Or your invoices are by law expired and cannot be legally claimed anymore. You can have a brilliant lawyer on the case, but if your claim is incompatible with the system, there is little chance for success.

6. Verdict may be unenforceable

Let’s say you decide to go legal, and you “survive” all five previous challenges. Then you might have to face a sixth hurdle. Because of the high level of “informality” in business (a lot of small companies with limited liability), no formally established company, businesses not properly registered or set up locally, inaccessibility of areas, untraceable business owners, lack of infrastructure, or no assets, the verdict you just obtained may in practice turn out to be unenforceable after all.

Summarizing, there are challenges for companies for starting legal proceedings in Latin America in connection with debt collection. I defined unknown territory, complicated legal systems, substantial legal costs, inefficient legal system, incompatibility and enforceability as the six main challenges.

It does not mean you should not start legal proceedings if the deal involved is economically worth it, and your files are up-to-date, and you have a budget available for proceedings; and, you are aware that patience is of the utmost importance. There are excellent lawyers who know the systems inside out, who can do a great job representing you and who can successfully collect your outstanding debts.

This post is just to give a very broad outline of the challenges foreign companies may face when they consider legal proceedings and it is not meant to generalize or simplify. I am aware that the challenges mentioned could also apply anywhere else in the world.

If you are interested in learning more on the subjects of legal proceedings or collections in general in 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.