Major Issues for Debt Collection in Four Latin American Markets

Collecting a foreign debt in Latin America can be challenging. Periodically, one is faced with major issues which complicate debt collection.

Below are four of Latin America’s biggest markets and major issues that may arise attempting to collect a debt on behalf of a foreign creditor.

Debt Collection in Argentina: Currency Issues

Argentina debt collectionArgentina’s economy has gone through several cycles the last few decades and the country has faced a deep economic crisis. Two of the major issues creditors and debtor have had to deal with are currency devaluation – the value of the Argentinean Peso dropping substantially as against the US Dollar – and foreign currency exchange restrictions as imposed by federal government. These two issues are interrelated and have negatively affected each other, resulting in considerable payment issues for debtors in Argentina, uncollectible claims for foreign creditors, and red flags for global creditor insurers because of negative credit rates.

Debt Collection in Brazil: the Challenge of the Economic Crisis

Brazil debt collectionConsidered one of the most influential emerging markets and part of the so called BRIC nations, Brazil experienced impressive economic growth and a rise in overall prosperity at the beginning of the 21st century. However, it fell into a severe economic crisis in 2014, from which it is currently still recovering. The Brazilian currency, the Real, devaluated as against the US Dollar and several businesses went bankrupt or otherwise have had difficulties paying outstanding invoices to foreign creditors.

Debt Collection in Mexico: Informality and Challenging Legal System

Mexico debt recoveryOne of the most open economies of Latin America, Mexico has passed through the global financial crisis that started in 2008, relatively unharmed. In fact, its economy has been growing for the last few decades and is considered an emerging market with great opportunities for foreign investors and traders. However, the challenges for foreign creditors in Mexico are the level of informality in daily business, as well as it’s malfunctioning legal system. These factors make debt collection in Mexico a challenge from time to time, and legally enforcing a foreign claim impractical and virtually impossible.

Debt Collection in Venezuela: Hyperinflation and Currency Exchange Controls

Venezuela debt collectionVenezuela has unfortunately been hit by one of the most severe economic and monetary crises of the century. Hyperinflation has lead to a collapse of the local currency, the Bolivar. Foreign currency exchange restrictions have made it almost impossible for local businesses to buy US Dollars, Euros or other foreign currencies. In combination with the collapse of the Bolivar, this has made it virtually impossible for local debtors to pay foreign creditors. Venezuela is one of the most difficult nations on earth for debt collection and a foreign debt can in most of the cases, by default and as a rule of thumb, be considered uncollectible and a certain write off.

Looking at respectively Argentina, Brazil, Mexico and Venezuela, we notice that the following are some of the major issues debt collection faces: currency devaluation, foreign currency exchange restrictions, economic crisis, informality, malfunctioning legal system, and hyperinflation. Most of these major issues, through the last decades, have manifested, to a lesser or larger extent, in all the countries mentioned and many other countries in Latin America and will likely continue to affect debt collection in the future.

David Zannoni

If you are a foreign creditor and interested in learning more major issues for 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.

5 aspects of company research in Latin America & the Caribbean

Whether you are at the verge of starting a business relationship with a Latin American or Caribbean company, or you have a claim on a business in Latin America or the Caribbean:  it is fundamental to gather the appropriate information about your business relationship.

You should always ask your business partner for basic information including corporate structure, tax numbers, commercial referrals and identification documents of its principals. This information may turn out to be vital later on in the business relationship, as you just never know when you start doing business if there will be concerns or claims, or if simply such information will be required in connection with for example credit insurances or logistic purposes.

In addition to what your business relationship provides from their own sources, you can do your own independent company research as part of your due diligence and compliance procedures for Latin America and the Caribbean.

There are companies specialized in providing B2B information research services, and servicing specifically international companies. Often such companies operate in account receivables or debt collection sectors.

Below is some of the information list we recommend each foreign company that does business in Latin America and the Caribbean, to search for.

The company’s corporate structure

What type of a company is your business relationship? Is it a sole proprietorship or is it an incorporated business with limited liability? When was the company founded? Where is the company registered and to which national and local jurisdiction(s) is your relationship subject? All very important information to determine the legal nature of your business relationship.

Assets and financial situation of the company

How much is the starting capital of your business relationship? Are there financial statements available or deposited at local registries or chambers of commerce? Which are the principal assets of the company? Does it possess real estate and is there any lien on such properties? Is there any information on your relationship’s payment behavior available? This information might be essential for providing credit lines and for any future claims on your business relationship in Latin America or the Caribbean.

Your business relationship’s commercial activities and operations

Which are the principal commercial activities of your business relationship? Where does these activities take place; which is or are the principal place(s) of business? Is there information available on providers or vendors? Does your business relationship represent any other foreign businesses? Are there commercial referrals or testimonials available concerning your business relationship? This information is essential to get a feel of performance of your relationship, before you enter into a deal or to compare with your experiences.

Executives and owners of the company

Who are the main executives of the company? And who are the owners, the shareholders or otherwise the principles? Do they have any links to other businesses and is there any information on them available, or referrals or testimonials? Be sure you gather this information as these people will be the ones who eventually take the decisions on your business relatonship’s end.

Legal information and law suits your business relationship is involved in

Is there any legal information available on your business relationship, like lawsuits? This information may provide you with indications on possible defaults, amongst others, or otherwise legal conflicts your business relationship in Latin America or the Caribbean is involved in.

We recommend international companies that do business in Latin America to assess the following information on (potential) business relationships in Latin America and the Caribbean: the corporate structure, assets and financial situation, commercial activities and operations, executives and owners, and legal information and law suits.

Cobroamericas is a boutique service providers offering debt collection, credit consultancy and company research information services to international companies doing business in Latin America and the Caribbean.

If you are interested in doing a company research in Latin America or 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.