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.

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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.