_by Etienne van der Vaeren
More and more creditors are turning to specialist debt collection agencies to recover the outstanding debts of foreign customers. Etienne van der Vaeren, the Belgium-based Honorary Chairman of TCM Group International, explores the issues.
As the global marketplace expands, the international debt load grows. Due to geographical as well as cultural differences, collection procedures and laws vary greatly from one country to another. Furthermore, the handling of consumer debts differs in many aspects to procedures for dealing with commercial ones, and small debts are handled differently to bigger receivables. However, solutions are always available to creditors, both to reduce the risk of non-payment and to recover unpaid receivables.
A global network of local collectors
While creditors may have many alternatives to debt collection service providers in their own country, they acknowledge the accrued difficulty in handling receivables in far-flung territories. The problem is evidently a time-consuming one and often a painstaking experience for the smaller creditors. Also, many of the larger multinationals with sister operations all over the world have come to accept that bringing in a sister company or subsidiary as part of a collaborative collection effort is not always efficient – sister operations have their own priorities and ‘family collections’ are often put aside. Hence many bigger enterprises eventually seek a partnership with a global network of local collectors.
The benefits of such partnerships are many and varied. Perhaps the most important of these is that the creditor’s receivables will be treated as a priority by the new collection partner. Moreover, the collection partner will have an already-established network of reliable and competent debt collection and lawyers’ offices, not just in the world’s main marketplaces but also in more remote countries where the volume of business is small. In addition, international collection partners can advise on global prevention and collection issues as well as on specific cases.
Another benefit is the collector partner’s one-stop shop capability: creditors who follow this route often work with one main contact, usually a local collection professional with access to the entire collection network, through whom all receivables are channelled. Consequently, creditors don’t need to worry about having to master several languages, nor do they suffer from remote contacts not understanding English or their own language. (I remember a big fuss being made some years ago because a British collector had not forwarded money to a Belgian creditor. The Belgian had repeatedly e-mailed his British contact with the message: “Until now, we had not received the money,” which wrongly stated that the money had eventually arrived. What he meant to say was: “We still have not received the money.” Tension rose until the language was ‘de-coded’.)
Thanks to the one-stop shop system, creditors don’t themselves have to adapt to the multitude of ways in which business is conducted abroad; instead, they can benefit from the experience the collecting agent has gained on how to circumnavigate particular cultural differences. Credit managers with international firms often have to deal with excuses about bugs in the information flow or glitches in the transfer of money that are normally caused by specific cross-border problems (for example, the inability to buy foreign currencies; the inability to export moneys; debtor not traceable, etc). Such excuses need to be checked and assessed to limit dissatisfaction and dispel the inevitable suspicions that they engender.
However, in most one-stop shop systems, the creditor’s main collection partner contact is usually located in the creditor’s own country, which facilitates clear communication and prompts solutions. The system relies on locally-based, trustworthy and internationally skilled service providers.
Different legal approaches
Would-be exporters usually highlight the risk of non-payment as a top concern. The sheer diversity of laws and regulations make it hard to grasp the key issues of selling abroad. In Europe, there are at least four different legal approaches: the British one (which is quite liberal in the sense that what parties agree rules their contract); the French one (based on the Napoleon Code which is comparatively more directive in the way agreements must be made); the German one; and the Scandinavian one.
Naturally, each of these national systems has evolved in respect of local culture and history. However, like all individuals, credit managers tend to base their thinking on their own cultural reference points and are bound to be taken aback occasionally by foreign regulations and conventions. While a British tourist in France can be happily surprised by, say, a visit to a baker’s shop, a British credit manager is sometimes staggered to discover why he will not be paid by a French client.
Too often, banks will offer credit to a foreigner based on the information delivered by the local government (the creditor’s country’s authorities). An account can be opened for, say, a Japanese national based on that person’s name written in occidental characters. But when this accountholder returns to Japan – with an open debt – he or she becomes almost impossible to trace. This is because names such as Suzuki can be written in many different ways in Japanese. In many Middle East countries, a citizen’s date of birth is not routinely registered by governmental bodies as an aid to identification, as it is in other countries. The authorities rely on the father’s and mother’s name instead. As a result, it can be difficult to trace individuals. It is always advisable to copy the original passport of someone you might need to trace one day.
There are many differences between countries in the way companies are registered and in the way that information is secured by the public authorities. However, the rise in internet usage has made it possible to have information checked quickly and efficiently by a reliable, locally located collection source.
No cure, no charge
It can be a source of worry for the careful creditor to have to pay an initial upfront fee to an unfamiliar, foreign legal practice before any work to collect the debt is undertaken. Having sent the file for collection and paid the fee accordingly, it may subsequently prove hard to cancel the commission and retrieve the file. Again, the base problem is one of limited flow of business between the creditor and the service provider, especially if the legal firm or collection agent involved has been chosen at random from a list.
Not being paid on time is a cost to creditors, so they need ensure that collection efforts do not further impact their bottom line. A contingent commissioning system for amicable collections is the answer to this problem. In common with other collection groups, TCM charges creditors only for the debts they manage to recover, not for the number of hours they spend trying to collect. Commissions usually depend on the age of the debt, its size (sliding scale) and the country location of the debtor.
Some 5 per cent of debts require legal action to be brought through the courts before payment is finally made. Cases are presented when the debtor appears to be solvent but is unwilling to pay on an amicable basis. Finding a collection partner who can always offer a legal solution is paramount because the debtor’s willingness to pay depends on the creditor’s means to make it happen.
Tracking changes in legislation
It can be hard enough to track legislative changes that are made in one’s own country. It is much harder – if not impossible – to keep up-to-date with the changes in the legal framework of other countries. The European Union (EU) directive combating late payment in business transactions, now implemented throughout the EU except in Greece, Luxemburg, Portugal and Spain, is one example of a complex set of rules which appears to be standardised across all EU member states but which in fact is not. This B2B late payment directive has become law in nearly each member state, but with modifications in some cases. In Austria, for instance, the rates of interest expressed are not based on European Central Bank figures as they are elsewhere. Also, the regulations concerning repossession of unpaid goods vary from one country to another. Moreover, court procedures also differ greatly from one EU member state to another. Another example is the recent EU directive on consumer credit.
Creditors with an international portfolio of business interests require a partner who is able to advise on contractual matters and the complexities of court proceedings all over the world. Such advice must be prompt, reliable and reasonably priced, if not free of charge.
Global collection agencies with a string of offices in remote territories can also chase debtors by employing a number of shortcuts. For example, dunning letters (reminders) can be sent to a debtor using a local letterhead, thus bringing the debt closer to home and making it appear more immediate. A US-based creditor sending a reminder to a German debtor has a lesser chance of triggering payment than if the same message is written in German and sent via the collection agency’s German office. In the case of TCM, this service is priced per letter (notwithstanding the amount at stake).
Another service is invoice verification. For instance, if a Japanese manufacturer needs to know that a Colombian buyer has received the goods and the invoice, the local collection agency office can contact the buyer and have this confirmed in writing. This is also normally charged per item.
Creditors need to be informed in a timely manner about the progress of one or several collection proceedings. The usual way to keep creditors up-to-date is through the collection system of the local office that contracted with the creditor. This ensures a level of standardisation at the creditor’s end. For its part, TCM is currently developing a web-based system to allow creditors to monitor their claims. This service, which will be available from next winter, will enable creditors to upload claims onto the system which will then dispatch the claims automatically to the relevant TCM offices and agents as per debtor location. Each TCM office will update each claim online so that creditors can monitor progress.
Selecting a collection partner
Every country boasts a large number of companies that claim to provide solutions for retrieving delinquent receivables. Selecting a service provider is difficult enough in one’s own home town, let alone abroad. It is possible to source a collection office or a lawyer in any country via a good web search engine or through the embassies, but this method is like a lottery – you can strike lucky, but the odds are against you.
A better way to go about finding collection partners would be to address the national professional associations. Bar associations or collectors’ associations can provide names for a number of potential partners in many countries. The US-based ACA International (formerly American Collectors Association) lists approximately 3,000 debt collection offices in the US and close to 300 offices in other parts of the world (for more information, visit the association’s website at www.acainternational.org). In addition, the Belgium-based Federation of European National Collection Associations (FENCA) has about 800 members in Europe (more details can be found on FENCA’s website at www.fenca.com). Outside of Europe and North America, many countries have a national collection association. However, membership of an association is not a guarantee of quality, even though most of these organisations do impose minimum membership requirements.
Many believe that the type of worldwide collection network provided by international groups like TCM offers the most effective means of debt collection. Through their considerable business volumes, global networks have the means to select professional, reliable collection partners in every country.
Forewarned is forearmed
With the current uncertainty over oil prices, stock markets, the dollar and business and consumer confidence, it is essential for any business to find new markets but at the same time keep its credit risk at an affordable level. There are not many economies that grew at a comfortable rate last year. Moreover, the forecasts are not reassuring. As a result, many weak companies will disappear, leaving their creditors in the cold. One of the prime issues for any enterprise is its ongoing ability to prevent non-payment and to collect as many debts as possible. More than ever, professional credit management is necessary. To be forewarned is to be forearmed.