There are several challenges that are encountered in international debt collection, which is why it is important to have an international debt collector in your corner if you need it. It can be difficult to collect on a debt from foreign debtors without in-depth knowledge of how collection works in their countries. This is why a company that collects international debts needs to be involved if you aren’t successful at collecting on your own.
As for the hurdles that must be overcome, they can be very daunting. Those challenges are: a lack of organization within a country’s court system, lack of regulations, and many debtors simply run out of cash to pay their debts.
Resolving Debts in Foreign Courts
In the white paper entitled, “Economic Outlook no. 1213,” the challenges of collecting international debts were examined. The report cited a World Bank Study conducted in 2014 that revealed which countries were easier to do business with. The report also looked at how easy it was to resolve insolvency in each country.
One of the reasons why some countries were easier to do business in than others was the courts. If it is necessary to take a debtor to court to recover at least a portion of the debt owed or resolve insolvency, it is imperative that the court system is as cooperative as possible. Japan and Germany were among the top countries to do business with. Saudi Arabia and India were among the most difficult countries to do business with because of procedural problems and corruption.
Not All Countries Have Good Regulations
One procedural problem some countries have is a lack of regulation. Not having regulations in anything can cause a wide range of issues. In debt collection, a lack of rules can make it nearly impossible to collect a debt.
According to the New York Times, there has been a debate on capping how much interest debt collectors can collect to combat a lack of regulations internationally. Some in the financial sector say that capping interest rates would cause issues with consumer lending. Everything from credit cards to student loans could be affected. However, those in other countries disagree, stating that they can’t deal with the exorbitant fees anymore.
Even in countries with good regulations, they aren’t in tune with those of debt collectors in other countries. Fortunately, this can be dealt with through strict contracts, particularly when the court system holds debtors accountable for breaking such contracts. Even if another country doesn’t have regulations, creating contracts based on what they do have can make it easier to do business in them. It makes an international debt collector more effective when collecting on the debt.
The key is the court system. If a company chooses to do business in a country that doesn’t have a reasonable court system, then it can be much more difficult to get a contract enforced. In other words, the debt could easily turn into a loss. However, this doesn’t mean that there isn’t potential for an international debt to be collected. It depends on how much risk a business is willing to take.
Norway is known as the best country in the world for doing debt collection. Debtors have high willingness to pay (WTP), court system is good, information flow is good and there are good and reliable credit reports and there is goodsystem transparency.
Because debtors have a high WTP Norwegiandebt collectors seeks to solve cases without the use of court systems. This makes the whole debt collection process better for both creditor and debtor.
On the opposite side you will find North Korea, but a more comparable country is Greece where both court system and debtors WTP is incomparable to other western counties.
The third issue in international debt collection is insolvency. When a debtor has no money, he or she can’t pay. The chances of collecting on the full debt are very low. In the United States, a person’s assets can be seized and liquidated to pay a debt. In some foreign countries, the process is much more complex, especially when the court system isn’t very organized.
In other countries with more structured court systems, it is possible to fight insolvency and collect on at least a portion of the debt. It may even be possible for an international debt collector to push a business in a foreign country to restructure its debts so that some or all of the debt can be recovered. The exact method of resolving insolvency depends on the rules of that country.
Successful International Debt Collection
Overall, doing business internationally can be risky. However, there are debt collectors that specialize in international collections. This may be an option after a business makes an attempt to collect on a debt itself. Nonetheless, successfully collecting on a debt means knowing the regulations of that country and being willing to file the appropriate claims in the court system. Then again, vigilance can be exercised from the very start by only doing business in countries that have organized court systems and sufficient regulations.