December 30, 2016
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In my thirty years as an international collection attorney, I feel I’ve “learned a thing or two” when it comes to debt collection.
For example, in general the longer a debt remains outstanding, the lower the potential it will be paid. If a debt is: • 1 year from the invoice date, the collection potential drops all the way down to 20% • 1 – 2 years from the invoice date, the collection potential drops further down to 10% • over 2 years from the invoice date, its potential collectibility is a mere 5%.
If you couch this collection potential within the fact that most claims submitted to my office are between 10-18 months past the invoice date, we can probably say that our overall collection rate is also about 20%. This would not only be a solid collection statistic for my office but for most collection agencies and attorneys world-wide. If it seems a little low, that’s probably why creditors are continuously being reminded to submit their claims early since the collectibility decreases over time quite rapidly.
In view of the statistical collectibility, we need to consider the stages that play into whether or not a collection agency or attorney is able to collect. Consider the following:
1) Can the debtor be located? If the debtor is not contactable by regular post, email, phone, fax, or even by making an onsite visit, we can’t even get to step one. When a debtor has skipped out leaving little or no trace behind, the claim is virtually uncollectible. Conversely, there are times when a thorough and clever search can uncover the whereabouts of the debtor, which can provide us with the next step in the collection process.
2) Can back and forth communication with the debtor be established? When a collector is able to talk or communicate directly with the debtor, the conversation and subsequent negotiation has at least a fighting chance to begin. Without having any level of back and forth communication, nothing will result.
3) Does the debtor acknowledge the debt? Through our initial conversation, if the debtor states that “yes” they understand there is a liability and that they may or do have an obligation to pay, the conversation can go to the next level which is, “When can we expect your payment?”
4) Does the debtor have the will and volition to pay? Acknowledging that a liability exists doesn’t always translate to accepting and wanting to pay the obligation. However, you’re almost home if you’ve reached the point where the debtor has the will to pay because you then you can ask, “How much can you pay and when?”
5) Does the debtor have the capacity to pay? Here is the very difficult part that every collector grapples with. Trying to work within the financial capacity of a debtor takes many factors into consideration, and is something that I’d like to focus on for the rest of this article.
As I had mentioned above, I have at least three decades of international debt collection experience. This experience has been obtained in working within the international debt collection industry, in which I have learned a great deal of how the debt collection process works in many countries, especially those that have well developed collection environments.
Generally speaking, when I receive and send claims from and to North America and Western Europe, I and my associates understand the difficulty and process as outlined in stages (1) – (5). By stage (5), we are further subjected to another set of challenges that we must deal with in order to ascertain the capacity of the debtor to pay.
a) Can the debtor pay in full and within a short period of time? For small amounts, it’s quite common to collect the debt in full. But as the amount becomes larger, the ability to pay in full and within a reasonable period of time decreases. Which leads us to the next step.
b) Can a reasonable settlement or payment by installments be made? Many debtors who have the volition to pay but not the capacity will try to negotiate a settlement or payment by installment. When most professional collectors have reached this point, they will try to do everything they can to maximize the amount they can collect. Not only for the benefit of the creditor but honestly speaking, for their own contingency based commission fee as well. Whether to settle or accept by installments depends on several factors. Let me give you a few cases for your consideration.
Not too long ago I had a claim for about US $650,000 from an agency in the Far East that was three years past the invoice date. In terms of affecting a creditor’s cash flow, the impact of not having been paid for three years had already been incurred and so from my view, any reasonable amount we could collect from the debtor would be a huge recovery for the creditor.
After extensive negotiating with the debtor’s attorney and receiving the creditor’s approval for full payment to be made under twelve installments, we obtained a signed agreement from the debtor. This was really fantastic collection outcome, particularly when you consider that a voluntary payment of this magnitude in Brazil is almost unheard of.
Then suddenly, the creditor, through their collection agent, changed their mind and demanded that the debtor pay in full.
Upon hearing that we were stunned for several reasons. Firstly, an agreement had already been approved and accepted by both parties and secondly, knowing that statistically it was very fortunate to have come this far on such a large amount, trying to go back and change the terms to a one time payment would not only be unreasonable, but could also put the entire collection at serious risk.
After a great deal of explaining to the overseas agent, who in turn explained the same idea to the creditor, any renegotiation of the claim’s settlement terms was not executed and I’m relieved to say that the debtor has been paying monthly on time. There’s no guarantee that the debtor will continue to make their payments, since they could have an issue at any moment that could make this collection fall through, but for the time being we and the creditor are very hopeful.
Although the latter example has a relatively happy ending for now, another claim received from Eastern Europe turned out to have some difficulties subsequent to negotiating a settlement.
About one year ago a large claim that was almost at the two year point for about US $200,000 from an Eastern European country was placed with my office for collection. Although the debtor was easily contactable, the debt was being disputed. After several negotiations, a settlement for half the amount was reached and approved on both sides.
Unfortunately, after a little bit of “cooling off,” a few days later the creditor felt the need to renegotiate the settlement amount claiming that the debtor seemed to still be doing business very successfully. In hearing the creditor’s assertions, I felt that based on my experience in communicating with the debtor that if we didn’t take the settlement that was approved, we may very well lose the collection. The creditor insisted that I subsequently try to renegotiate the settlement, which we did and by doing so, gave the debtor an opportunity to maneuver out of the obligation for several months. Fortunately we were able to return to the original settlement offer but not until the creditor and his agent realized when NOT to lose a good collection opportunity.
The conclusion is that in some parts of the world where the collection industry has not had the long decades of development, many creditors are still learning about how to give credit overseas and what to expect when placing their claims within the international collection community for collection.
At the same time, I have also learned that prior to taking a claim from creditors and agencies in countries that are still in the learning process, I need to explain the process in advance so as to minimize any misunderstandings as we move along in our collection efforts.