Collecting outstanding debt in international trade is seldomly played by the rules of regular debt collection.
Deals in international trade are generally closed across multiple jurisdictions. Because of the complexity of legal systems, and the substantial costs involved in enforcing payment through (cross border) legal proceedings, debt collection for claims in international trade often comes down to amicable settlement negotiations[1].
This is further empowered if the mutual benefits and interest of the commercial relationship between creditor and debtor are so high, that business would be seriously hit if the relationship was damaged by escalation of a business conflict or worse, termination of the relationship.
In this article we discuss how you can effectively engage in debt negotiations in international trade.
Proper case preparation for the debt negotiations
First of all, you need to be familiar with the case. Do your fact-checking and get an understanding of the context behind the outstanding debt. What is the status of the commercial relationship with the debtor? What is your position as creditor? Who is the debtor and what is the socio-economic, political, and legal context of the region they are based out of? Which are the reasons that the debtor has defaultedon payment? Does the debtor have financial problems, or is there a dispute about rendered services or delivered goods? Are sudden currency fluctuations an issue? Which interests are at stake? [2]
Showing empathy for the counterpart
Secondly, it is important to connect with the debtor. Showing empathy is crucial in negotiations. Empathy can be defined as “the ability to sense other people’s emotions, coupled with the ability to imagine what someone else might be thinking or feeling”[3]. According to the Harvard Law School Program on Negotiation, it is important to establish a relationship of trust to be successful in negotiations. Trust is built by listening and acknowledging[4].
Chriss Voss says that “the beauty of empathy is that it does not demand that you agree with the other person’s ideas, but by acknowledging the other person’s situation, you immediately convey that you are listening”[5], which is key in leveling with your counterpart and obtaining potentially crucial information that you can use during the negotiation process.
In my view, showing empathy gets an extra dimension in international trade, given the presumable differences in culture and location of creditor and debtor.
Determine your leverage for the debt negotiations
Thirdly, determine the leverage you have. Leverage may be defined as “the ability to influence situations or people so that you can control what happens”[6].
According to Voss[7], leverage is the ability to inflict loss and withhold pain: where does your counterpart want to gain and what do they fear to lose? Voss further describes three types of leverage, all of which can be used during a negotiation process: (1) positive leverage: being able to give the other person something he or she wants; (2) negative leverage: the ability to inflict loss or pain on the other party; (2) normative leverage, which is about influencing someone through their personal beliefs or rules, which may for our purposes in international trade include business or company culture, cultural, regional and even religious values, economic vision, commercial position, and reputation.
Set targets you want to achieve
With all the information gathered during your fact-checking and with your leverage defined, it is important to set your targets for the negotiations and stick to them. The target may be full payment of the outstanding balance, but more often, a more realistic target may be to collect part of the outstanding claim, within a certain range – for example, the aim to collect between 60% and 80% of the outstanding amount. Another target may be about how fast this amount should be collected: will it be immediate payment, or under a monthly payment plan? Targets may also include alternative solutions, like return of goods, or compensation in the form of services.
Establish a negotiation strategy
To achieve your targets, you must elaborate a strategy for your negotiation. The strategy may change from case to case, but including the fact-checking, establishing an empathy-based relationship, defining your leverage and how and when to you use it, and setting concrete targets, and how and when to go for your goal, should be part of the strategy. Furthermore, some recommended best practices based on Grant and Galinsky[8] include making the first settlement offer to the debtor (rather than inviting your counterpart to do so), play the game of counter offers (as this satisfies both parties), also giving the debtor the feeling that they closed a good deal. But do not counter too low and importantly, stay within your targets.
Finally, find out how the decision-making process within the debtor’s organization works, and make sure that the right people – the decision-makers – sign off on a settlement agreement once reached.
Assess the results of the debt negotiations
To learn for the future and improve your negotiations skills, assess the results after the negotiation process has ended. Did you have your facts right? Were you able to create empathy with your counterpart, the debtor? Could you establish and successfully apply your leverage? And did you achieve your targets?
Solving claims of outstanding debt in international trade is all about negotiating the best possible deal; whereby fact-checking, establishing a relationship with the debtor through empathy, defining your leverage, setting targets, sticking to a strategy and assessment of results, are key.
If you want to know more about debt negotiations in international trade, 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
[1] https://cobroamericas.wordpress.com/2019/06/09/b2b-debtcollection-latam-settlement/
[2] https://cobroamericas.wordpress.com/2018/01/29/settlement-negotiations-latin-america/
[3] https://greatergood.berkeley.edu/topic/empathy/definition
[4] https://www.pon.harvard.edu/daily/dealmaking-daily/dealmaking-negotiations-how-to-build-trust-at-the-bargaining-table/
[5] Never Split The Difference, Chris Voss, 2016, page 72
[6] https://www.collinsdictionary.com/dictionary/english/leverage
[7] Never Split The Difference, Chris Voss, 2016, page 220 – 224
[8] https://www.forbes.com/sites/work-in-progress/2013/12/05/six-surprising-negotiation-tactics-that-get-you-the-best-deal/?sh=4c55935c5976
Debt Collection Latin America & the Caribbean 