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.

Advertisements

International Debt Recovery: Mediation

When negotiations about an international debt have not lead to an agreement, the parties may end up in a situation where either the international debt remains unsettled (and practically, the debt will become a write off for the claimant), or the claimant will have to start legal proceedings and go to court over the claim.

Debt unsettled or legal proceedings? Think twice

mediation and debt recoveryThese alternatives are rather unattractive: the creditor will not like to remain with an unpaid or unsettled debt, and eventually, a write off, and the debtor might not like this situation either as it stands in the way of recovering the commercial relationship with creditor and it may harm debtor’s reputation in the business. And none of the parties will look forward to legal proceedings given the costs and time involved.

Mediation as alternative in international debt recovery

A serious alternative is mediation: provided that both parties agree, creditor and debtor appoint an independent mediator who will assess the situation regarding the international debt and work towards a mutually acceptable settlement agreement. Recommendable is to appoint a mediator with broad experience in and knowledge of international debt recovery.

The mediation process: sessions with creditor and debtor

mediation debt recoveryDuring the mediation process, the mediator will have joint sessions with creditor and debtor, and / or separate sessions with each of them, to understand the situation regarding the international debt or the dispute from each side’s point of view, and to learn about what each of the parties propose as solutions for the situation or the dispute. The sessions can with today’s technology, and depending on the size of the international debt, be organized in person or by teleconference.

Working towards a settlement for the international debt

mediation debt collectionThe next stage is what is defined in mediation literature as “caucuses”: the mediator will start separate sessions and discussions with each of creditor and debtor to learn about their core interest, which elements of a settlement would be acceptable, and which are “no-go’s” or “deal breakers” for either creditor or debtor towards settlement of the international debt. The mediator will subsequently go back and forth between creditor and debtor with ideas, suggestions and proposals with the aim of finding a mutually acceptable settlement agreement. The mediator’s leverage here is that, although a settlement agreement will never 100% satisfy any of the parties, the alternatives – an unsettled international debt and loss of the commercial relationship and harm to a business reputation, or expensive and time consuming legal proceedings, are even less tempting.

Consider mediation if all amicable options run out

Have you considered mediation as an alternative during international debt recovery, when your debtor is not paying, or if there is a dispute between debtor and creditor? If all negotiations between creditor and debtor fail, mediation might be the only serious or costs efficient alternative to an unsettled international debt (and at some point, a certain write off for the creditor) or legal proceedings.

If you are interested in learning more about mediation solutions for international debt recovery, 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.

International Debt Recovery: Negotiation

Negotiation is an essential component of international debt recovery. The international debt collector will often need to negotiate in order to collect (part of) a debt. Below we are discussing seven elements of negotiation during international debt recovery which we believe are essential for achieving a solution which is satisfactory to your client, the creditor.

Understand the circumstances of the international debt

international debt recovery financial issuesBefore you start negotiating, be sure you understand the circumstances of the debt. Why does debtor not pay? Is the creditor’s claim disputed or acknowledged? Does debtor have financial issues, short-term or long-term? Are financial issues business-related, sector-related or because of domestic economic, social, political or monetary problems (currently Brazil with an economy in regression, or several other Latin American countries like Colombia, Mexico and again Brazil who are dealing with heavy currency devaluations)? Can debtor not pay because they are subject to foreign currency controls (like Argentina or Venezuela)? Which alternatives do you possibly have if you do not accept to negotiate the international debt (insistence on full and immediate payment, legal proceedings to enforce payment, or a write off and end of commercial relationship)?

Set goals: what do you want to achieve with negotiation?

Once you understand the circumstances of the debt, define what your goals are during the debt recovery process. A payment plan or a settlement, or a combination? (partial) waiver of debt in exchange for return of goods? Which target amounts or percentages will you go for and what is the very minimum you will accept for settlement or instalments?

Be realistic about chances of debt recovery

When you set your goals for debt recovery and your negotiations with debtor, be realistic about what can be achieved. What may be realistic is defined by the circumstances of the debt, how much flexibility creditor shows, your negotiations skills and to what extent you can convince debtor but also creditor. Chances for success for negotiations in international debt recovery increase substantially if you are able to find the right balance between what the circumstances of the debt allow you to do, and how far creditor is prepared to go to recover (part of) the international debt.

Show empathy for the debtor

During negotiations with the aim to collect an international debt, it is important that you show empathy for the debtor. You have to understand debtor’s position and take concerns, issues, problems and proposals seriously, and give debtor the feeling that you are negotiating with debtor with the aim to find a mutually satisfactory solution for the international debt. You will have to do this without ever abandoning your position as representative of the creditor, and keeping in mind always what would be the best outcome for the creditor.

Be straight in your communication with creditor

international debt collection communication skillsEqually as important as showing empathy for the debtor, is being straight in your communication with creditor. Never forget: you represent the creditor and your ultimate goal should be to gain as possible as possible from your negotiations during international debt recovery. From your negotiations, case by case, you will learn what the best possible achievement will be during the international debt recovery process. You should constantly communicate with creditor; explain to creditor the steps you are taking. What according to you is possible to achieve under the circumstances, and why. And which goals you set when you negotiate with debtor about the international debt.

Be settlement-minded during negotiations

Having read the above, it goes almost without saying that you should be settlement-minded when you negotiate during the international debt recovery process. You may often take as a fact that you will never get a hundred percent of what you are claiming on behalf of creditor. At the same time, you should want to achieve as much as possible. Perhaps that “as much as possible” is a settlement amount of 80%. Sometimes it will be 50%, or 25%.  Or a payment plan of six months, twelve months, or five years. The definition of a satisfactory settlement during international debt recovery is, as already pointed out above, determined by the circumstances of the debt, and the flexibility of the creditor.

Close a clear agreement about the international debt

international debt recovery agreementOnce you have reached a settlement, or you agreed with creditor and debtor on a payment plan, put the agreement on paper and make sure what the terms and conditions are, what is expected from debtor, and what debtor may expect from the creditor and from you if the agreement is honored and also when the agreement is not honored. It is important to give and take. Meaning that if debtor complies with the settlement payment or payment plan, he or she receives an official release letter and perhaps the door is open again for business between creditor and debtor. On the other hand, if debtor does not honor the agreement, it may mean that the full debt is claimed again by creditor, legal proceedings against debtor are started (if possible at all) or the commercial relationship between creditor and debtor is fully terminated.

In this article we discussed seven elements of negotiation during international debt recovery which we believe are essential: understanding the circumstances of the international debt,

Setting your goals as to what do you want to achieve with negotiation, being realistic about chances of debt recovery, showing empathy for the debtor, being straight in your communication with creditor, being settlement-minded during negotiations, and closing a clear agreement about the international debt.

If you are interested in learning more about how to negotiate in order to recover an international debt, 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.

Leverage In International Debt Collection

Leverage can be vital to achieve success in international debt collection. The existence of leverage is often a vital ingredient to negotiate payment or settlement of outstanding debts and mediation in international claims.

Leverage can be defined as “influence or power used to achieve a desired result”. What kind of leverage may a creditor, its legal representatives or a debt collection agency have when collecting an international, commercial debt?

Existence of a commercial relationship

international debt collection leverageIf the international debt is between two businesses, both the creditor and the debtor may have an interest in maintaining the commercial relationship and solve any financial issues between them. This means that the debtor may be willing to pay and the creditor may be in a position to agree to a settlement of the debt, if necessary. We consider the existence of a commercial relationship and the importance of maintaining the commercial relationship as probably the most important leverage the side of the creditor may have during an international debt collection process.

Legal alternatives for payment of international debt

international debt collection legal actionAnother important leverage the creditor may have is the alternative to start legal proceedings against debtor and to legally enforce payment of an outstanding debt. In reality though, often this alternative may be relative as legal alternatives for international debts are either limited, and / or time-consuming, and / or expensive. On the other hand, the fact that legal proceedings are time consuming and expensive also goes for the debtor, and this in itself may be sufficient leverage to push debtor to pay or except settlement.

Personal relationships between creditor and debtor

international debt collection relationshipsNot unusually, creditor and debtor have been in business together a while and personal relationships have been established across departments and management. This may be another type of leverage the creditor may turn on when collecting a debt internationally. Depending on the size of businesses, there may be several people involved in the business relationship between creditor and debtor, and people may feel committed and may be willing to continue their personal relationships and avoid any personal issues as a result of the outstanding international debt. This leverage can also be used when attempting to collect an international debt, by involving in the negotiation people with a personal interest in the business relationship and personal relationships between them.

Importance of the industry reputation of debtor

international debt collection reputationThe importance of debtor’s industry reputation may also mean leverage for the creditor, when collecting an international debt. Debtor may feel that the existence of the international debt, and disruption of the commercial relationship because of the debt, if it becomes known within debtor’s industry, would damage debtor’s reputation. Some industries have warning lists for bad payers. The creditor, its legal representatives or its debt collection agency should definitely use this leverage, if present.

Leverage in international debt collection

In this post we discussed the important of leverage during negotiations over an international debt. We mentioned the following types of leverage: the existence of a commercial relationship, legal alternatives to enforce payment, personal relationships between creditor and debtor, and the importance of the industry reputation of debtor.

If you are interested in learning more on the subject of leverage in international debt collection, 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.

South America Commercial Debt Recovery: Issues

What are the typical issues companies encounter when attempting to collect an international debt from a business in South America?

Below we list eight issues we deal with in commercial debt recovery in daily practice.

Financial issues & insolvency

South America debt recovery insolvency

One of the of main issues commercial debt recovery in South America may run into is financial problems. Businesses are in bad weather, caused by economic micro- or macro factors, and cannot comply with their payment obligations. Sometimes the issue is insolvency on the debtor’s end. 

Disputes & misunderstanding

Often a reason for overdue payments in South America is a dispute or misunderstanding regarding the commercial deal or the services provided or products delivered. Reality does not match expectations. The amounts claimed during debt recovery are disputed or there is a misunderstanding as to the amount actually payable.

Incompatible paperwork

South America debt recovery documents

In some cases, the paperwork between client and the debtor in South America is incompatible. At least from debtor’s point of view, payment cannot be done as debtor requires other or additional paperwork in order to comply with local legal or accountancy rules and remit payment. Such paperwork can include the contract, order forms, order confirmations and invoices. 

Currency exchange controls

In some countries, debt recovery in South America can be challenged by foreign currency exchange controls. In some countries, like Brazil, international payments are subject to prior controls which can delay or obstruct payment. From other countries, notoriously Argentina and Venezuela (please see previous post about Venezuela),  it has become difficult or impossible to transfer monies out of the country. For more info on foreign currency exchange controls in South America, please click here.

Lack of leverage

International debt recovery gains strength with the leverage the collector and his or her client has. Leverage can be a commercial relationship the debtor still has an interest in to maintain or re-establish, the realistic option of enforcing payment legally if no payment is done or a payment agreement is not reached amicably, or the reputation debtor wants to safeguard. If there no such leverage, because debtor is not interested in re-establishing the commercial relationship or going legal is in reality, because of the local circumstances or an incomplete file, not an alternative, it can become an issue to collect an international debt in South America.

Communication

South America debt recovery communication

Often communication is an issue for commercial debt recovery in South America. Without knowledge of the Spanish language almost all over South America, or particularly Portuguese in Brazil, it is difficult and in most cases impossible to attempt debt collection in South America. Also the distance (physical or time zone wise) can be a major issue for debt recovery from a business in South America.  

Unprofessional behavior

Sometimes collectors and their clients are confronted with unprofessional behavior of businesses in South America. Although unprofessional behavior in business takes place all over the world, the level of informality in business in South America sadly enough regularly provokes unprofessional behavior and payment avoidance towards creditors abroad.

Unfamiliarity

An issue for creditors or their collectors can be the unfamiliarity with South America as a territory. Its infrastructure, (business) culture and collection alternatives are often unknown to businesses outside South America.

Debt recovery in South America

If you are interested in learning more or discussing issues that rise when attempting to collect an international debt in South America, or in general you would like to know more about debt collection in Latin America & 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.

International Debt Recovery: Communication Techniques

The previous two posts about communication in international debt recovery were about the context and means of communication available to the collector. This post will be about communication technics in international debt recovery.

We will describe four techniques that are without doubt essential for communication in international debt recovery.

Tight collections process

international debt recovery techniques processIn first instance, it is of the utmost importance that you set the framework when you are collecting a debt internationally. Timelines, frequent and consistent following up by email and telephone, and if and when necessary, regular mail, means you set the rules of the game. You should almost show empathy, be professional, take into account the debtor’s situation and the circumstances that may affect speed and outcome, but at the end of the day your aim is to collect as much as possible, as fast as possible. Give debtor reasonable time between the follow ups to comply with what you request or agree, but make sure there are clear deadlines and strictly follow up on your own deadlines.

Use of leverage

international debt recovery leverageWhen communicating to collect a debt internationally, you must be aware of the leverage you have – or do not have. This determines whether you can demand full payment, should look for a settlement, can go legal or not, may consider accepting return of products or goods, and if there is a reasonable chance to reach an agreement on a payment plan. Leverage can be the existence of a commercial relationship the debtor still has an interest in to maintain or re-establish, the realistic option of enforcing payment legally if no payment is done or a payment agreement is reached amicably, or the reputation debtor wants to safeguard. Understanding the leverage, you have and using it in your communication is in our opinion is an absolutely essential tool for successful international debt recovery.

Negotiation

3d bussines white and red humans make a handshake

When the situation requires or provides for the opportunity, be prepared to negotiate with debtor during your communication. If the situation requires so, or if debtor is reasonably looking for a settlement or a payment plan, be open to negotiate; be reasonable, be fair, but always keep in mind your client’s interest in collecting as much as possible, as fast as possible. Each situation is different in that respect, and the circumstances dictate what will be as much as possible and what fast is. Negotiation is an integral part of international debt recovery, and particularly if substantial amounts are involved that make a serious economic difference for debtor and client.

Mediation

international debt recovery techniques mediationIf the reason of an outstanding international debt is a dispute, international debt recovery turns into true mediation. If the situation requires so, and as often legal proceedings is a rather expensive, time-consuming and therefore unattractive alternative, in circumstances with a dispute involved, in reality the only serious option to recover part of the debt is mediation. Obviously the aim is to recover as much as possible, as fast as possible: as you will see, that should at all circumstances be the starting point. When you mediate between debtor and your client you will have to accept that the outcome will end up somewhere in the middle. You should always look for the best solution possible for your client, taking at the same time into account debtor’s (reasonable) arguments, situation, and circumstances.

In this post we discussed four techniques for international debt recovery: a tight collection process, use of leverage, negotiation and mediation.

If you are interested in learning more on the subject of communication in international debt recovery, or international debt recovery in general, or specifically debt collection in Latin America & 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.