4 Creditor Questions For International Debt Collection

In a global economy, companies that do business abroad will inevitably run into a situation whereby clients do not pay. Those companies generally look for assistance with international debt collection. Often there is an existing relationship with a local debt collection agency, and this agency will use its network to try to collect their outstanding debt abroad. Sometimes, a foreign debt collection agency is hired directly to deal with the cross-border claim. 

Before starting international debt collection, the debt collection agency should ask the creditor the following four questions – and in order to answer them, the creditor will need the expertise, experience and know-how of their debt collection agency.

Why is the Claim Unpaid?

solution creditor debt collectionIt is essential to determine the reason(s) why the debtor does not pay the outstanding debt. Does the debtor have financial issues? And if so, how deep are the problems? If there are no financial issues, is there may be an issue with the delivered products or the services that were provided? If this is the case, can the creditor offer solutions? Or are there other reasons why the debtor is not paying?

Does the Creditor Perceive Willingness to Solve?

This question relates to the previous one. Is there is a willingness on the debtor’s end to look together for a solution? If the problem is financial, is the debtor willing to discuss a payment plan or a settlement, or a combination? If the unpaid debt has got to do with product or service-related issues, is the debtor prepared to discuss return of goods, repair, partial compensation or a discount, or additional assistance in the case of servicing issues?

What is the Leverage the Creditor has?

Before setting out a strategy, it is important for the creditor and the debt collection agency, to understand the context. What leverage does the creditor have? The answer depends very much on the size of the claim, the location of the debtor, the commercial relationship (is there still a relationship or was it terminated?), and the potential legal options. Once the creditor has a full understanding of the leverage, a proper negotiation strategy can be elaborated.

What Cost is the Creditor Prepared to Pay?

costs creditor debt collectionThe final question relates to the costs involved with international debt collection, and what the cost is the creditor is prepared to pay. The answer to the question what the costs will be, depends on the age and size of the claim, the location of the debtor, and if the strategy will entail an amicable approach or legal proceedings. When it is clear what the potential costs would be, and how much the creditor is prepared to pay, the debt collection strategy can be adjusted accordingly. As at the end of the day, international debt collection is all about the economic benefit and keeping the costs for the creditor as low as possible.

Before a debt collection agency starts international debt collection, the creditor should be asked the following four questions: why is the international claim unpaid, does the creditor perceive willingness on the debtor’s end to solve the claim, what is the leverage the creditor has, and what will it will cost the creditor to recover the debt?

If you want to know more about international debt collection in general, and debt collection in Latin America and the Caribbean in particular, 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

International B2B Debt Negotiations

There are several ways for creditors and debtors to engage in International B2B Debt Negotiations.

Which are the most efficient ways?

International B2B Debt Negotiations in Person

What can be one of the most efficient ways of International B2B Debt Negotiations, is for creditor (and / or their representatives like lawyers or a debt collection agency) and debtor to meet each other in person. Meeting each other in person means that people can look each other in the eyes, notice each other’s body language, and connect on a personal level. This can be a positive impulse to work towards a solution for existing issues (whether financial, service-related or with respect to quality of delivered goods). However, in the case of international claims, there is likely a considerable physical distance between creditor and debtor. Therefore, it may not be cost-efficient to have (many) in-person meetings.

Using the Phone to Negotiate an International Debt

Debt Negotiations by PhoneIn International B2B Debt Negotiations, likely most of the negotiations between creditor and debtor will take place by phone. Depending on the complicity of the claim and the negotiations, it may be useful to have several conversations before reaching a conclusion – an agreement, or escalation (engaging third party intermediaries, starting legal action or freeze the commercial relationship, for example). During such conversations, creditor and debtor will be able to better understand each other’s position, show and receive empathy, discuss several potential solutions without formalizing anything yet (as that will happen by email).

Negotiating International Debts via Zoom and Skype

Debt Negotiations by Skype and ZoomAn alternative to phone calls or in-person meetings about international claims, is to engage in negotiations by means of video calls, like Zoom or Skype, or similar Apps. The advantages as opposed to phone calls, is the creditor and the debtor can see each other and make visual contact. This may be perceived as more personalized than a normal phone call, and a suitable (and more efficient) alternative if in-person meetings are not possible due to distance, costs or emergency (like the COVID19 crisis).

International B2B Debt Negotiations via Email

It is nowadays customary to carry out (part of) International B2B Debt Negotiations by email. Negotiations by email are key to summarize phone discussions, send formal proposals, to confirm agreements and to follow up on promises made. However, it should be complimentary to phone calls, Zoom or Skype discussions, or in-person meetings, not replace them, due to the static nature of email negotiations.

Global Debt NegotiationsInternational B2B Debt Negotiations can be done via in-person meetings, phone calls, Zoom or Skype meetings, or email. Probably the most efficient combination is to have phone calls or Skype and Zoom meetings, whereby email is used as a complimentary tool to summarize, send formal proposals, formalize agreements and follow up on promises.

If you want to know more about international B2B debt negotiations, 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

Multilingualism in International Negotiations

Why is it important to speak several languages if you are negotiating a cross border deal? Here are some answers.

You can obtain in-depht information about your counterpart

Multilingualism in negotiationsIf you speak the language of the country your negotiation counterpart is in, you have access to much more information than without speaking the language. You can obtain information about the economy, business habits, and political and social circumstances of the country your counterpart is based in. This means you will be able to better understand the context for your negotiations and you can fine tune your negotiation skills and strategy taking into account such specifics.

Being multilingual makes it easier to show and get empathy

languages in negotiationsBy speaking your counterpart’s language and understanding the context his or her business is operating in, you be able to show more empathy. Showing empathy is a key element to successfully negotiate an international deal. On the other hand, if you speak your counterpart’s language, it will be easier for him or her to be empathetic towards yourself, as you will be in a better position to explain in detail your business and what is important for you to achieve during the negotiations.

Multilingualism increases the likelihood of a successful outcome of your negotiations

In depth conversation in your counterpart’s mother language can lead to better overall understanding of each other’s positions. You be able to effectively handle in detail the cross-border negotiation and the likelihood that you will be successful will be higher.

Multilingualism in international business negotiations means you will be able to obtain in-dept information about your counterpart, it makes it easier to show empathy towards your counterpart and get empathy from him or her, and overall, multilingualism will increase the likelihood of a successful outcome.

If you want to know more about multilingualism and cross border negotiations in international business, 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

B2B collections in LATAM: negotiate, mediate, settle

If you are dealing with B2B collections in Latin America, you may run into nonpaying debtors, commercial or financial issues the debtor may have, and local situations in Latin America that may considerably complicate succesfull collection.

In order to deal with such situations, change your mindset to negotiations, mediation and settlement.

Negotiations in B2B collections in Latin America

My advice is to be prepared to negotiate. A trigger to negotiate is often the lack of alternatives. Debtors may otherwise take the stand that they will not pay, and the only way to enforce payment, is to start legal proceedings. The latter is a rather unattractive (and sometimes, practically impossible) alternative. This will be discussed in more detail below. Please read the following articles about negotiation in international debt collection and settlement negotiations in Latin America for more insight.

Mediation in B2B collections in Latin America

Another alternative is to look for mediation in Latin America, especially if the amount owed is substantial. An independent third party will in such case be appointed as mediator between creditor and debtor. For more thoughts on mediation in international debt collection, please read this previous article.

Looking for a settlement

The aim of negotiations and mediation with the debtor in Latin America is reaching an amicable settlement. An agreement between creditor and debtor that both parties can live with. A settlement agreement may consist of a one-time payment as full and final settlement, or a payment plan, or a combination. Sometimes, continuation of the commercial relationship between the parties is also agreed, which can be continuation of import / export of delivery of services, whereby for each future payment (usually on a pre-payment basis) part goes towards payment of the debt.

Avoid legal proceedings in Latin America

The recommendation is to at all times avoid legal proceedings in Latin America. Generally speaking, as legal systems and requirements between countries differ, sometimes substantially, cross border files are not sufficiently solid in order to enforce payment by means of legal proceedings. Also, legal may be expensive and with little likelihood to collect, the creditor may end up with high legal bills which cannot be recovered from the counter party, the debtor.

In dealing with a debtor in Latin America, be prepared to negotiate, to mediate, and to settle. Avoid legal proceedings because of its complexity and costs.

If you are doing international business in Latin America and you are interested in learning more on B2B collections, 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.

Settlement Negotiations In Latin America

You may have been in a situation that, while doing business in Latin America, your Latin American client refuses to pay because of issues.

Provided that your client is a professional party with good intentions, there may be plenty of reasons not to go for hardline collections or legal measures, but rather take on the approach of settlement negotiations.

The following are in our experience the most common categories of issues that may be the reason Latin American companies default on payments with foreign business partners.

Your Client May Have Financial Issues

Latin America financial issuesYour counter party might have stopped or slowed down with payments because it encounters financial issues. This could be because of business specific situations, including bad commercial decisions, mismanagement, start-up difficulties and therefore struggles with cashflow, or just bad luck with its products or services.

Sometimes the issues are sector related, and a whole sector may suffer because of natural disasters (epidemies, earthquakes, draught or wildfires), technological development with products or servicing becoming less needed or completely out of use, or otherwise.

And finally, your business partner in Latin America may suffer financially because of a whole nation or region being in an economic crisis. This can be de result of national economic circumstances (Brazil), political decisions (Venezuela), or national disasters (earthquakes in Mexico and hurricanes affecting Caribbean nations).

Exchange Rate Issues In Latin America

It could be that your debtor in Latin America is facing exchange rate issues.

This can be the result of economic factors, or political decisions. In recent years we have seen Colombia, Mexico, Brazil, Argentina and Venezuela, all to a larger or lesser extent, been affected by exchange rate fluctuations, especially the exchange rates with the US Dollar and the Euro, two of the main trading currencies for Latin American companies that do business internationally.

For companies that import from abroad, or use global services, prices of international products may rise substantially in a short period. If the volume is considerable, and especially if their markets are local and they earn in local currencies, unable to compensate for the increase in import costs, companies in Latin America may face serious issues because of changing exchange rates.

For more info on exchange rate issues in Latin America check out our previous blog post.

Product Or Service Related Issues

Latin America product issuesYour debtors in Latin America may have genuine issues with your products or services provided. Now this can be the result of bad expectation management on the debtor’s side, or mistakes in commercial communication between both parties. It can also be that the local markets, unexpectedly, do not embrace your products and your counter part in Latin America, being the middle man, fails to sell the products. Or your counter part feels it is experiencing problems with the delivered products or provided services.

If any of these issues apply to your debtor in Latin America, it is very important to consider settlement negotiations as opposed to hardline collections or legal proceedings, and here are five arguments why.

 Avoiding Legal Proceedings In Latin America

 Settlement negotiations are aimed at finding an amicable solution. By doing so, you will avoid going legal. This is highly recommendable as legal measures in Latin America are in general expensive, slow and often impractical or even impossible. Please read for more info our previous blog post about legal proceedings in Latin America.

Settlement Negotiations Reduce Costs

Focusing on settlement negotiations mean that the parties will intent to find an amicable solution within a limited period of time. This will not only avoid legal fees and costs, but also costs you would incur during the whole amicable collection process.

Settlement Negotiations Reduce Time Spent

Collection procedures in Latin America can be very slow and time consuming. By focusing on settlement negotiations, you will reduce the time spent substantially and therefore, you will have more time to dedicate on other, perhaps more rewarding activities.

Concrete Solution For The Outstanding Debt

The outcome of settlement negotiations should be a concrete solution, which is to be signed off by both your debtor in Latin America, and yourself. Concrete solutions reduce or even eliminate future misunderstanding and room for interpretation and discussion.

Solution Driven Approach May Save Commercial Relationships

Latin America trade issue solutionGoing for the solution driven approach of settlement negotiations, as opposed to hardline collections and legal, substantially increases the chances of saving the commercial relationship with your business partner in Latin America. This means you will not only collect outstanding amounts, but you will also continue to do business and earn money on your Latin American business partner.

The reason that your Latin American client slows down or stops paying your invoices, may be because they face financial issues, exchange rate issues or issues related to delivered products and services.

If the relationship between your client and yourself is genuine, it is recommendable to take on the approach of settlement negotiations. Five arguments in favor of settlement negotiations as opposed to hardline collections are: avoiding legal, reductions of costs, reduction of time spent, focus on obtaining a concrete solution, and a solution driven approach may save commercial relationships.

If you are interested in learning more about settlement negotiations in Latin America for outstanding debts and commercial issues, 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.