How to recover late payment charges overseas

3 things you absolutely need and how to use them right

By Wiebke Harry
Senior Collector

Your sales force has secured a buyer abroad and the sale went through smoothly, all goods were shipped as requested, no complaints or issues were reported, the invoices were issued and sent through. So far, so good. 60 days later, as the payment due date has come and gone, credit control is sending reminders to give them a gentle nudge. There is no response. Further reminders are sent, a few call attempts are made. Still nothing.

If your business has found itself in this situation before, you are certainly not alone. This is where a debt collection agency with global reach or the collection services of a specialist such as Euler Hermes come in to help with a local presence in the country, which removes language barriers and time zone issues. It is there to persistently add pressure on them to come through with the payment.

The money may at last be back in your pocket, but really, given the amount of hassle your buyer has put you through, draining your cash flow and taking up your precious time, you would rather they pay for the charges you incurred when instructing a collection agency.

What the legislation says

In the UK, there is legislation – the Late Payment of Commercial Debts (Interest) Act 1998 and its 2013 amendment, section 5A, to be exact – which supports suppliers in this respect. It means you are entitled to collection costs incurred and also interest at 8% above base rate of the Bank of England. This is invaluable for recovering charges incurred on the domestic market. Click here to access the UK government information on the Late Payment Act.

But what about other countries, you ask? This is quite a different story. I hope you are comfortable and have a hot drink of your choice to hand. It may be difficult to believe, but collecting collection fees or late payment interest outside of the UK is a bit like trying to get ketchup out of a bottle if the annoying seal under the cap has not been removed You can squeeze all you like, but the desired result will not materialize.

Why is that? Legislation like above mentioned Late Payment Act is rare on this planet and many countries, even entire regions, have no legislation to support suppliers in this regard There is no custom or concept locally that would make this more palatable to the buyer.

There are exceptions worth mentioning, which are the Netherlands and Scandinavia, where there is law - and custom - that makes life easier in this respect. In these countries, collecting interest, if not always costs, is significantly easier and more common.

Three tips to help you recover last payment charges

In the title, three things to help with this debacle are mentioned. Now, what are those?

To quote a very competent trainer in the field of import and export, these are – cue drumroll:

  • Documents
  • Documents
  • Documents!

You may think what a cheap way to pad out one thing and capture your audience without delivery, but bear with me, because it demonstrates beautifully just how important documentation is for export collection.

I studied international business and languages in Germany and have been working on export collections for more than 12 years, so I have seen many an infuriating scenario that has reminded me of this lesson, time and again.

I remember a court case by a UK supplier against a buyer in Singapore that will help you understand the significance of this. The UK supplier  lost the case because the Singaporean debtor insisted that they never ordered the several dozen containers of frozen fish and the supplier had no document to prove that they were in fact ever ordered, although they could prove the shipping and import process was followed impeccably. For all we know the containers, which were at the time sitting in a warehouse at a harbor in Singapore, are still there to this day!

A lot of business is done by handshake in person or over the phone, without calls being recorded, which can work well, if all goes smoothly that is. However, if you find yourself in the position mentioned above, you quickly realise that recovering your money – let alone any additional charges you incur in the process, can be very difficult

The big one here is the contract between supplier and buyer. Terms and conditions (Ts and Cs), Sales agreement, Contract of sale, whichever is showing at the top of the all-important document: this is where many things go pear shaped! Terms being printed on the back of an invoice are problematic. Why?  While they provide information as to what the terms the supplier generally trades under, invoices are a post contractual document. They are issued after the offer and acceptance part of a contract coming together - legally speaking. So at the time an invoice is issued, informing about the terms along with this type of document is a little like drawing up a prenup after the honeymoon. This makes them difficult to enforce in court.  

Following on from this thought, with the difficulty being in the timeline of the exchange of information, another common way of referring to Ts and Cs is including a link in correspondence where parties can access a pdf or other type of document with the terms via the supplier’s website. If this is mainly to provide information as to what the terms are for anyone who is interested or needs to know more detail, this can be useful.

However, if in front of a judge in a courtroom you present a print out of a pdf as the only written document showing a contract or terms, the judge may reject this with the comment that this document could have been written and printed the night before. There is no evidence that these were the terms in place at the time the order was made, or that the other side agreed to these at that time.  This has happened in many court cases I have worked on.

Even if you have swerved the pitfalls mentioned, there may be no clause within your terms which mentions what should happen after payment fails to show up on your account, bringing us back to the main topic.

How can I fix this and protect myself against headaches like this?

  1. I wholeheartedly recommend getting your terms and conditions reviewed by a qualified solicitor who has experience with export and import and all that comes with it. It should include a clause that mentions that if payment is delayed past due date, the buyer will be liable for third party collection costs incurred, late payment interest, and – while you are at it – legal charges incurred where necessary. If you already have 5 star Ts and Cs including all of the aforementioned, excellent! In that case, proceed to point 2.

  2. Ensure that your terms are in hard copy at some stage, perhaps printed off by the buyer, so they can be signed and dated. If you have a scan of this on file, this would be a major improvement over any of the above scenarios. Your best bet here is for the terms to be signed, before any order is placed. If you think of ordering something online, you normally have to tick and confirm electronically that you have read and acknowledged the terms and conditions, before a website will allow you to actually proceed with an order. This is a very useful principle in this context and I would encourage anyone to apply the same in trade.

  3. Find out about the specifics in your country. An invaluable tool to do this is the Croner’s AZ guide to Export. It is the size of a church bible, but if you need to know what documentation is commonly required for shipping goods to Romania, Israel or the Netherlands Antilles, it will certainly help to be informed. Many countries have very specific requirements, and being prepared for these will make a world of difference when trying to recover payment. You can also refer to the Euler Hermes country reports and collection profiles available here.

 

Is there a guarantee that collection fees can be recovered if you follow all of the above? Unfortunately not. In the Middle East for example, I have seen cases with a contract that mentioned costs and interest clearly - signed by both parties - go to court and the judge still rejected a claim for costs and interest. So there is always a chance this will not lead to recovery of charges.

If you predominantly trade within Europe and the US however, you are far more likely to be successful following the above guidelines, and you will be no worse off trying this regardless of where you trade. If you are unsure about the conditions in the countries you trade in, consult your Croner’s about more information relevant to the area, or speak to your trusted export collector. Overall, this will increase your chances of getting back more of your hard earned money in the future, and it will require relatively little effort to follow the 3 points above.

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