As Global trade increases day by day, the issue of unpaid debts is one that is also on the rise resulting in an increase in the need for International Debt Collection services.
International Debt collection involves overseeing the recovery of unpaid foreign debts and is very much a crutch for worldwide trade. As a general rule of thumb, Debt Collection agencies are instructed by creditors to collect outstanding claims. In addition, the purchase of outstanding debts is possible but for very little compared with what is actually owed.
The collection of debts is generally not an easy task, however, it presents the even greater challenge for creditors. Different legal systems, payment habits, and foreign exchange regulations entail considerable cost risks as well as uncertainties regarding the prospects of success.
So, what are International debt collection Agencies and how can they help? Ultimately, these are licensed, and accredited companies that offer the Professional collection of debts. Collection costs are minimized to the party that is owed money by way of the costs largely being absorbed by the Agency themselves.
Debt collection: importance for companies
Although debt collection is an essentially a type of legal service, it does not mean legal proceedings is necessary. Indeed, according to leading UK Debt Collection Agency Federal Management, less than 1% of International Debts they deal with require Legal Action unless there has already been Legal action of course.
Large companies that have a high volume of goods and/or customers, in the case of unpaid invoices, pass on the money claim to a debt collection service by default within their terms and conditions usually. This is handled, for example, by mail order companies, electricity providers or insurance companies.
Hiring a collection agency has several advantages for companies: Firstly, collecting money is time-consuming and expensive. As a result of outsourcing, the client can, therefore, save personnel and financial resources, especially because debt collection usually does not belong to the client’s core competencies.
In addition, it can prevent major bad debts from escalating. Ultimately, professional help ensures that bad debts do not have to be passed on to paying customers and at the same time do not take on any existence-threatening proportions.
In the United Kingdom, Federal Management is considered the leading B2B Debt Collection agency whilst Frontline Collections are highly revered for their Private Debt Collection work.
In the USA, there are many great Agencies to choose from, and each should be a member of the US trade body for Overseas Debt Collection.
Collection procedure – working methods
The collection industry often does not enjoy a particularly good reputation in public opinion. However, there are also quite a few serious collection agencies. If there are too many allegations of debt collection fraud, those who have received a letter from the office concerned should be startled and, for example, contact the Customer Center.
A reputable collection service provider uses a variety of ways to get the debtor to pay. In addition to writing, telephone reminder is also included.
- Informing the debtor about the legal consequences of non-payment,
- If necessary, the determination of the current debtor address,
- Negotiation of agreements with the debtor, such as installments, deferrals or settlements,
- Possibly also negotiations with debt counseling services, lawyers of the debtor, etc.
- Judicial dunning and enforcement orders (debt securities),
- Foreclosures such as seizures,
- If applicable, the application for asset information,
- Realization of loan collateral.
If necessary, the debt collection claim is also tracked over a longer period of time or, in the event of the debtor’s insolvency, reviewed at regular intervals. Private individuals can often order debt collection online.
Another indication of seriousness is the membership of one of the major industry associations. In the UK that would be the Credit Services Association or in the USA, the ACCA. If you have doubts about a collection agency (e.g because of unjustified claims, threats, unreliable answers, etc.), you can contact the industry authority or even hire a lawyer to handle the case.
Collection fees: reimbursement of pre-trial costs
Dependent on which country you are located in, It is not always possible to charge the debtor for the costs of commissioning a collection agency. It is a type of compensation for which certain conditions must be met, including:
- The debtor is in default of payment he FDCPA (Fair Debt Collection Practices Act) in the U.S.
- The debtor was requested by the creditor to pay at least once as part of a reminder. On the other hand, collection without a reminder is only permissible if a specific time has been set for the payment or has not yet been paid 30 days after receipt of the invoice.
- The creditor has complied with his loss mitigation obligation and kept the damage as small as possible.
If it is fundamentally justified to commission debt collection, the debtor only has to pay certain expenses.
Cost of Overseas debt collection
Because successful international debt collection requires professional staff and experience in the law and law of the respective countries of foreign debtors, overseas debt collection can be disproportionately costly compared with Debt Collection within your own jurisdiction, even in case of failure.
Cheap is not cheerful however you will want to source a highly Professional Company with a proven track record to maximize the chance of collection. An Agency with international debt collection partners who operate around the world will usually only receive their commission if their international collection is successful.