Smooth out-of-court settlement in Western countries
In certain countries, out-of-court settlement is effective. This is the case in Western countries (Western Europe, North America) and the Commonwealth (Australia for example). Reminders are typically sufficient to produce the desired response from the debtor. The reason for non-payment should then be ascertained over the telephone. A face-to-face meeting is required if the customer remains silent. This applies particularly in the United Kingdom and Germany, where late payment is potentially a sign the debtor is experiencing problems, in a part of the world where traditionally receivables do not remain unpaid for long.
In the Netherlands, there is often a good reason for late payment and customers disclose as much quite willingly, including by providing figures. In Germany, a conversation can resolve issues, with confirmation in writing. In Belgium, the involvement of a third party proves effective and decisive.
In the countries mentioned, out-of-court negotiation generally culminates in the establishment of a payment schedule, to which debtors usually adhere. Telephone reminders may be necessary depending on the circumstances, and it’s usually essential to be able to converse with debtors in their own language.
Irregular collection in Southern Europe
The pressurised economic environment is particularly palpable in Southern Europe. This is reflected in difficulties in securing payments from debtors, which should be taken into account in any debt collection procedure. Late payment (longer than 60 days) is consequently frequently seen in this region.
In Portugal and Italy for example, it’s possible to check beforehand whether a debtor is subject to insolvency proceedings, via the companies register or the country’s official gazette.
In these countries, the response to an overdue situation needs to be swift. It isn’t unusual to adapt collection actions to the debtor’s revenue. This modus operandi requires regular reminders, especially by telephone, to keep up the pressure and obtain payment as and when money is available. Claiming late payment interest in addition to the debt is not always a given. For example, the enforcement of this penalty is not viewed favourably in Italy.
The influence of specific local features
Late payment means different things in different countries, depending on the context and local custom and practice. In Poland, debtors feel free to adjust payment terms to benefit from better exchange rates. In Japan, where paying one’s debts is a matter of honour, an overdue often indicates major solvency issues.
In many other regions, a dispute is often introduced into the discussion, with the aim of reducing the amount owed. This applies to Brazil, India and China. In India, the weight of custom and tradition makes discussions a minefield. In China, as in Japan, a dim view is taken of those who fail to pay their debts. A commercial dispute is therefore often the cause of an overdue invoice.
Local culture can also be a crucial factor in relationships with debtors. Mastery of the language is essential for telephone discussion.
A Polish contact will not be overly impressed to be addressed in English, and substantial pressure inevitably needs to be brought to bear on Polish debtors to secure payment. The same applies to Italy and Portugal.
However, this method is to be eschewed in China, where discussions must aim towards negotiation. In Morocco or Turkey, use of a local agent is essential to build a solid relationship with a debtor, and this agent will take direct charge of issuing reminders to customers. In Russia, some kind of local presence is necessary to properly identify debtors, as there is a definite risk of confusion over addresses and registered names. To say nothing of debtors who vanish into thin air without even dissolving their companies.... Custom and tradition also demand in-depth knowledge of the local context in India.
The burden of legal procedures
Out-of-court settlement is recommended to avoid becoming embroiled in legal proceedings that might prove lengthy and costly. The delay before cases reach the courts is the first hurdle - it can be longer than 18 months in Spain and Italy, for example, and can stretch over several years, which is usual in Portugal.
Punctiliousness in proceedings is a factor to be taken into account in Morocco, Turkey and Russia. It is often necessary to produce irrefutable proof, as in Japan or India. Costs can sky-rocket in Australia and the United States once lawyers are involved.
In a federation of states, such as the USA or Brazil, federal law combined with different legal frameworks in different states add to the complexity of legal proceedings. Lastly, the unpredictable nature of rulings handed down in Chinese, Moroccan, Polish and Russian courts is also a fact of life to be taken into account.
Even in countries where the legal system works well, an analysis of a debtor’s solvency is essential before any decision to start proceedings that can only serve any purpose if the debtor is in a position to pay.