Michael N Collyer
Global Financial Crisis, are three words almost guaranteed to strike fear into any businessman. Since 2007 the Global economy has suffered its worst setback since the 1930s and some argue that this financial period should be classified as the “Great Recession.” ( The 1930s was referred to as the “Great Depression”)
No country was immune to the effects of the recession though some have faired better than others. Every business in the world will have been affected most detrimentally but a few positively. However, what is very obvious is that business is slowing down; cash flow is becoming difficult, credit is tightening and as a result payment terms are being extended and debts are mounting all over the world.
For a company or individual to owe money to another is normal and has been a part of life and business since time begun. The way that money was recovered has varied from country to country dependant on the culture, laws and traditions, all of which are understood by the people of that country. People from another country may do things completely differently but it matters not what they do as each community is separate unto itself. However, in a global economy there is naturally global trade and global business, it follows therefore that there are global debts and the difficulty of recovering debts on a global scale can not be over estimated. As a result of the global financial crisis there is now a massive increase in global debts bigger than ever experienced in history.
Attitude to debt has changed over the years from days of old in the middle ages when people were thrown into jail for debt until they paid, to modern attitudes in some countries that have decreed that debtors need to be protected from creditors. In many countries now debt does not carry the stigma that it did before. Attitude to debt therefore depends on the culture, law, traditions, and attitude all of which will be different in each country. Just as different countries dress differently and speak differently so their laws are different and their attitudes are different and it is this difference in approach to debts and debtors that presents the greatest problem to collecting international debt.
Of course the easiest way to collect a debt is to talk, negotiate and settle on an agreement that both sides comply with and no legal action is requested or required. However, even that is difficult these days with some countries having extremely draconian laws controlling debt collection whilst others have no law at all. Imagine therefore, if you will, a company from say Kazakhstan where no laws exist in regards to debt collection has money owing to them from a company in the USA. They will not understand when the debt collector in the USA, with whom they have placed the collection case, demands papers to support each fact, explains that they can not call the debtor company before certain times, can only make one call a day and when the debtor can’t or won’t pay the only option is court. The debtor can easily go into bankruptcy and there is nothing they can do. The company in Kazakhstan can not understand it because it is not the way they handle things in Kazakhstan.
This then is the problem of the international debt collector and a matter for all in international trade business to understand. Each country has a completely different attitude and approach to debt and it is one of the many risk factors one should consider before and when trading internationally. What is the situation in regards to collection of an account if something goes wrong!
The debt collector has resource to two routes; the non legal route sometime referred to as pre-legal collection and the legal or court route. The former is usually cost free and quick the latter expensive and long depending on the legal system.
We will, over subsequent issues and articles, explore in more detail the difference of the laws in each country but let’s look at a generalisation first. Is the law common law or codified, is it based on the Napoleonic system or the Roman system is it religious based such as Sharia Law? Is an accused innocent and you have to prove him guilty of is he guilty and he has to prove himself innocent. Did the colonial past of the country shape the present legislation, have the people voted on legislation, or was it imposed on them by force. Is the criminal law closely associated with the civil law, is there a strict commercial due process? All these factors will affect the type of legislation and the affect it has on the collection of debts and each country is different.
The action that can be taken in the legal stage will be controlled by the legal system. In most countries the actions that can be taken in the pre legal phase are laid down by legislation that has arisen in recent years. However, the amount of control will depend on the country and generally the more liberal the country the more control that is exercised over collection companies. The Fair Debt Collection Practices Act (FDCPA) of the USA is probably one of the strictest pieces of legislation laying down a very strict regime under which collection agencies may operate. Such things as stating the times you can and can’t call a debtor and what you can and can’t say to them are just two examples.
As has been mentioned previously the laws are different in each country. For example, in South Africa the law lays down the charges that a collection agency can apply to an account and the interest as well as restrictions to the way a debtor is approached and spoken to. The remainder of Africa however is not yet controlled too heavily by such collection legislation.
In Europe they are following the US and UK example but as yet the restrictions are not so emphatic but full written details of the debt are usually required in most countries before the collection company can open a case and start the collection action.
Asia is not so restrictive but HK and Singapore do have various legislations that have some control of the collection process, though China is currently unrestricted.
Australia and New Zealand are controlled by various legislations.
Central and South America have little in the way of collection legislation.
In addition to the collection legislation collection companies are also restricted by other legislation that may apply including the laws relating to data protection and privacy. Jurisprudence will affect collection efforts and I refer to the Statue of limitations and general civil and criminal law as well as court procedural law. A restriction on licensing of companies and indeed individuals to carry out collections is yet another restriction imposed on collection efforts by society in some countries.
In fact all jurisprudence will, at times, affect the collection process in both routes the pre legal and the legal. However, the effect of jurisprudence will be dependant on the type of law and it should be remembered that the various types of law will affect the individual and the individual’s rights and therefore the collator’s ability to collect the debt.
History and culture as well as religion play a large part in the laws that exist and it is this that can shape collection laws that legislators pass if they are in force in a country.
What is obvious though is that the move is very much in the direction of protecting the debtor rather than increasing the ability of the creditor to collect his debt. More and more countries are applying licensing and introducing collection legislation and codes of practice. So far as is known no country has repealed or restricted their legislation!
How then does this affect the collection industry well like most things the more difficult it is to do something the more expensive it becomes though this of course is tempered by market forces and the inevitable supply and demand rollercoaster.
The two extremes of collection are probably the Japan and UK. In Japan the restrictions on collections are so strong that only Lawyers are allowed to collect debt and the court system is long and difficult and it would seem that Greece in Europe is about to pass the same legislation and their court system is also long and arduous. As a consequence rates for collections are very high. Collection in the UK is probably one of the more controlled but the legal system works well and quickly and as a consequence rates are reasonably low.
It follows therefore that the country in which a collection is to be made is an important factor in the rate calculation. Since most countries now have collection offices offering no collection no fee contingency percentage commission collections we need to look at how this can be offered. It is simply on a risk basis the collection company knows the risk and the percentage chance of collection in that country for that type of debt and they base their charge or % commission on the known facts. The better those facts appear the lower the rate.
The country of debt will obviously affect the risk and depending on how easy or hard it is to collect in that country however that is not the only risk. There are four factors:
Country of Debt
Type of Debt
Companies like Global Credit Solutions that offer collection throughout the world in over 100 countries have offices in most and agent in the remainder have to know the legislation of each country so we can brief our clients or other GCS partners.
The diversity of country legislation is tremendous. For instance take just the Statute of Limitations. The shortest is 6 months in the Cook Islands in the Pacific and you can only take action in the islands themselves and must be present yourself! In the Czech Republic however there is no limit and in Luxemburg it is 30 years.
In Ukraine debts can only be paid to the creditor and not the collection agent yet in a number of countries no authority whatsoever is required by a collector to demand the debtor pays the collection company and not the creditor.
In Denmark the collection company must have full written detail of the debt signed by the creditor yet in Switzerland they require nothing.
Interesting in the middle of Europe which has very powerful privacy laws and collection legislation Switzerland has none!
In most countries all legal expenses can be charge to the debtor if the case goes to court and is won but only in very few countries can the collector’s commission be charged to the debtor.
So you can see that Global Collections is a subject fraught with difficulty and a thorough knowledge of just how collections can be made in these countries is required and it is only in major international collection companies that this information is available and then only because of the network of local offices, collection experts and an understanding of the international collection processes.
What is interesting is there are very few if any International Laws. There are a number of agreements and treaties and arrangements but no common laws that apply to all citizens of all countries at all times, with the possible exception of offences against humanity but certainly no collection legislation!
Not only is it important to know how the law works but it is essential if you are going to take the legal route that you know how the courts work. Is it quick and simple or long and difficult? Is it expensive or cheap do you have to employ specialist litigation lawyers or can any lawyer appear in court? Does the creditor have to appear himself or herself or can a lawyer act in the case for them. How long is the court waiting list and is the system honest of corrupt.
It follows therefore that for you to have a debt collected in another country you need the assistance of an international debt collection company that has partners in all countries to advise them and Debt Expert, by having joined Global Credit Solutions, can offer just such a service.
We have covered briefly and generally the influence of legislation on the collection process and in further articles we will look at a number of countries individually and see just how much legislation affects that countries attitude to debt collection and how effective it is for not only do you want a collection to be quick and reasonable priced you want it to be effective!