KYC Policies in Global B2B Collections

In global business, as part of compliance, it is essential to have a so called “Know Your Client” (KYC) policy in place.

For debt collection agencies that operate in international B2B collections, it is important to understand the nature and background of its clients and the debts the agency handles.

Often the debt collection agency’s client is the creditor of an outstanding debt, but not always. Sometimes, the debt collection agency represents another, foreign collection agency and hence the client’s client is actually the original creditor.

How does this affect a debt collection agency’s KYC policy? 

Definitions of KYC and KYCC Policies

Let’s first define KYC.

As per Wikipedia, KYC is the process of a business verifying the identity of its clients and assessing their suitability, along with the potential risks of illegal intentions towards the business relationship.

KYC also enables businesses to better understand their customers, the kind of business they run, and the transactions they carry out.This helps company to mitigate risk.

KYCC policies debt recoveryInformation a company may look for to receive from their clients includes:organization charts(containing the full legal name, the registered address, description of business activities, and extract from a formal register, like the Chamber of Commerce); details of the Ultimate Beneficial Owner(s) (UBO(s)); the source of funds and / or wealth of the client and its UBO(s); and public office or government position(s) held by the UBO(s).

 In addition, there is also Know Your Client’sClient (KCC).KCC is a verification process that identifies a client’s client activities and nature.

Global B2B Debt Collection: KYC, KYCC & Key Case Information

Debt collection agencies operating in international business, should have a KYC policy in place, which stresses the understanding not only of the client and their business activities, but also the specific cases or sorts of claims the debt collection agency is hired for to collect.

In addition, in those cases in which a local debt collection agency acts on behalf of another, foreign debt collection agency, it is important to know their client’s client and their business activities; and therefore, have a KYCC policy in place as well (as part of the KYC policy).

Key Case Information Debt CollectionFinally, the international debt collection agency should understand the nature of each case it handles. Key case information may consist of: a detailed breakdown of the debt; the full legal name, registered address and business activities of the debtor, as well as key contact persons (which may include the signatory parties or owners); and all supporting documents in connection with the claim, including but not limited to, contracts, invoices, order forms, order confirmations and (relevant, email) correspondence.

In international B2B debt collection it is important to implement a KYC policy. Since in international collections, the debt collection agency often acts as third party as representative of another, foreign debt collection agency, such policy should include KYCC verification. Also, part of the compliance process should be to receive and verify certain key information of the case(s) the debt collection agency will handle.

If you want to know more about international B2B collectionsand compliance, 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

Latin America commercial mediationIf 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

Latin America commercial transaction legalShould 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.