International Debt Recovery For Digital Services

Digital services, by definition, reach a global audience. Business is carried out crossing borders.

But what to do if foreign clients don’t pay the invoice?

Here are some thoughts as to how providers of digital services should approach debt collection for cross border payment issues.

Digital services and international invoicing

The term digital services refers to “the electronic delivery of information including data and content across multiple platforms and devices like web or mobile”^[1].

Examples of digital services include games, e-books, cloud-based software, websites, and streaming music^[2]. 

The growth of international digital services is continuous. With that, inevitably, also default of payment of invoices increases. Currency fluctuations, international instability, economic crises, and location-specific issues may all contribute to payment default for users of digital services.

International debt collection for Digital Services

How should digital service providers approach debt recovery?

Debt recovery with an international mindset

It is important for providers of digital services to work together with internationally minded debt collection agencies. The agency should have a cross border strategy, if can mean an international team, or working together with foreign debt collection agencies. The latter can be through a cross border members platform.

A multilingual debt collection agency

Once the servicing crosses borders, the language changes. Although contacts may speak English or another lingua franca, that may not go for everyone within the debtor’s company. It becomes even more complicated if the outstanding debt requires legal assistance, as often formal information and documents are only available in the local language. Therefore, it is essential that the debt collection agency the digital services provider works with, is multilingual, and speaks the debtor’s local language.

Debt collectors covering multiple time zones

Another crucial element is the coverage of multiple time zones. Often, in international business, creditor and debtor are not in the same time zone. And although the 9 to 5 mentality is in any case subject to erosion, covering all time zones yourself is impractical and frankly, impossible. Consequently, if the digital services provider has international collection issues, it is important to work with a debt collection agency that covers multiple time zones, often through its network of affiliates and collection partners.

Digital services are provided internationally. Digital services include games, e-books, cloud-based software, websites, and streaming music. Providers of digital services should approach debt collection issues by looking for debt recovery agencies with an international mindset, who are multilingual, and who cover multiple time zones.

If you want to know more about remote working in debt collection, feel free to contact us via 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

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^[1] https://www.excella.com/insights/what-is-digital-service-delivery

^[2] https://blog.se.com/datacenter/2016/08/03/digital-services/

International Debt Collection in the Real Estate Sector

Payment issues in the international real estate sector can derive from disputes, financial issues, socio-economic and political issues.

How can international debt recovery be described in the real estate sector?

We will look at real estate investment, sales, banks and lenders, rentals, and property management. 

Payment issues on real estate investments

One scenario is that the builder of a real estate development, collects from its investors under investment agreements. An investor does not meet the obligations under its investment agreement, resulting in payment default. The builder in this case is the creditor, and the investor is the debtor.

Another scenario is when a real estate project in development collapses. An investor that invested in the construction of the project, reclaims repayment of the amount invested. However, the builder does not (or cannot) meet its obligations under the financing agreement. In this scenario, the investor is the creditor, and the builder the debtor.

Debt collection in connection with sales of real estate

An alternative situation is when a builder or real estate agent sells a single property to a buyer, and eventually, the sale falls through because the transfer of title cannot be completed. The buyer is committed to the purchase of the property under a purchase agreement. The payment obligation may consist of a single payment or several installments. The buyer may have already (partially) paid the purchase price of the property and is looking to receive back its payment(s). In this situation, the buyer is the creditor, and the seller the debtor. 

On the other hand, it may be that under the purchase agreement, the seller is complying with its obligations (including maybe even transfer of title), but that the buyer is not paying the agreed purchase price of the property. The seller will want to enforce payment of the purchase price by the buyer, whereby the seller is the creditor, and the buyer the debtor.

Debt collection for banks and real estate lenders

Another debt collection case may be a bank or lender, that has provided a mortgage or a loan to a buyer to purchase real estate. If the buyer defaults under the mortgage or the loan agreement, the bank or the lender usually seizes the property under foreclose. If, however, the amount of the mortgage or the loan supersede the value of the property sale, the bank or lender will have a claim on the buyer for the remainder. 

The situation may become more complicated, if a loan is provided by a private lender whereby the lender does not have a lien on the property. If the property buyer does not meet the obligations under the loan agreement, then the lender is the creditor, and the buyer is the debtor.

Payment default in case of property rentals

Properties can be rented out as long term or vacation rentals. Sometimes, a property owner rents out directly, but more often, the rentals are handled by a third party, like a real estate agent. It can happen that a tenant fails to pay the rent. In this case, the landlord is the creditor, and the tenant is the debtor. 

Debt collection for property management

Property management, especially for condo buildings, is typically carried out by a property administrator. The property manager collects maintenance fees and additional costs on behalf of the owners’ association. It regularly happens that a property owner or a tenant does not the pay maintenance fees or additional costs. In this case, the association or the property manager is the creditor. The debtor is the defaulting property owner or the tenant. 

As a final note, I would like to mention the potential burdens for successful international debt collection in real estate. Such burdens may include the lack of leverage, multiple jurisdictions to deal with, unsolid contracts and other underlying documents, absence of the use of escrow in international real estate transfers, and the absence of cross-border legal support during the beginning of the process and later on.

Payment issues in international real estate can be related to disputes, financial issues, socio-economic and political issues. Debt collection can apply for real estate investments, property sales, mortgages and other loans, property rentals and property management. Who is defined as creditor and who as debtor, differs according to the particular default situation. Burdens for success in international debt collection in the real estate sector can be related to lack of leverage, multiple jurisdictions, unsolid contracts, the absence of an escrow, and insufficient legal support.

If you want to know more about debt collection in international real estate, 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 Negotiations in Global Trade

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

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^[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