Phone now
0333 800 8919

How To Recover International Debt and Avoid Credit Risks

From time to time every business will experience the unfortunate scenario of a customer who refuses to pay an outstanding account and ignores any reminders or chances they are given to settle the outstanding balance. For language service providers dealing with clients from all over the world recovering international debts can be daunting.

Each country has different debt collection laws and many of them can be complex. For instance in the USA most States have different laws affecting debt collection, and these are completely different to laws being applied in Europe or Asia. It’s extremely important that firstly you instruct a reputable, well-established, professional company to recover your money if you are having no success yourself. This article will outline the checks you can do before offering credit, as well as what your options are if you have to recover a debt from a client.

What checks should you do before offering credit?

  1. Credit checking your potential and existing clients can help to reduce any risk as to whether your invoices will be paid. You do not require any permission from Limited companies to carry out a credit search on them, the situation is slightly different if you are dealing with a sole trader, you would need to ask their permission as these searches are registered on their credit file and can affect their credit rating. The search will give you an excellent snapshot into the company’s or individuals financial position in the form of a credit rating, company’s net worth, any floating charges they have to the bank, any other directorships the director has, and if they have any court actions or judgments against them. In the UK companies such as Experian or their business arm will let you check out companies or individuals for a fee. My own company, Debt Collect UK, can carry out these checks on UK companies free-of-charge and for a small charge for overseas companies. Other reputable debt collection companies may offer the same service.
  2. Get your clients to fill in a credit application form. Using the form you can gather vital information about an individual or company you are dealing with, such as: the business and home addresses; mobile and landline numbers; gathering references from other suppliers; bank details. You can even include a basic Personal Guarantee, which means that you can pursue directors personally if the company goes into liquidation or does not pay you. All this information is extremely valuable for your own credit control and also if you need to instruct a debt collector or solicitor to recover your account for you.
  3. If you ask for references you should always follow them up. First check you have not been supplied with bogus references. You can do this simply by checking out the referee company with a simple Internet search. The referees should have a presence via search engines such as Google, Safari or Firefox.  Check out their websites and judge whether it looks genuine. Do the telephone numbers match the ones on your credit application form? When you call, do not be shy about asking plenty of probing questions such as: How long have you traded with the business? What’s the Directors name? Have you had any issues with payment in the past? What amount do they turn over with you a month? How do they pay you? All of this may take up 15 minutes of your time, but it’s a lot less time than you will spend chasing a debt if they don’t pay you.

Late payment or bad debt?

It’s also very important to recognise the reasons behind why you have not been paid. If the amount owed is undisputed, then the reason will almost certainly be that your client is in some sort of financial difficulty or experiencing cashflow issues. If the company has been unable to pay you, it’s highly likely that they will have other suppliers who won’t have been paid too. Search business forums for intelligence. No doubt those companies will be considering using the services of a debt collector or litigation solicitor too. Given our own company’s knowledge of the translation industry, some of the most effective ways to find this out are through forums, or by speaking to some of your peers. It’s vitally important that you act as quickly as possible though. We say to all our clients after 60 days from your invoice date. The more time you waste on repeating the credit control process, such as reminder letters, emails, texts and phone calls, the less chance you have of recovering the outstanding debt. If your first letter, emails and phone calls do not work, it’s unlikely that the third letter will work either. In the meantime, another supplier could have instructed a third party to recover their debt and been paid in front of you, as they were shouting the loudest.

Most businesses, no matter the size, will have some credit control procedures and processes in place. These must have an efficient process of establishing when a late payment requires further attention before it becomes a bad debt. You can establish this from chasing your client for the money owed. Do not be afraid to ask them forward questions such as, “When are we going to be paid?” “How are you going to pay us?” “What’s the hold up with the payment?” This should then be followed up on the day the client advised you they were going to pay. Don’t be scared to ask your client for your money. You should also look at your client’s past payment history to evaluate if this is a late payment or a bad debt. In some industries payment after 60 or 90 days is not uncommon, in construction or manufacturing for instance. You should have clearly outlined your payment terms in your Terms & Conditions or on your invoices, by law you must allow a debtor 30 days to pay, no matter what your payment terms are. After this period then it’s up to you to decide when you want to decide that this account is a late payment or a bad debt, as we have stated above 60 days is more than sufficient, but once you decide that the case is a bad debt you should refer the account to a third party as soon as possible.

Lawyers or Debt Collectors?

Solicitors or lawyers definitely have a place in the debt collection process and the work they carry out can just give a debtor that final push to pay you. However, the pitfalls of instructing a solicitor to recover your outstanding account is the cost. A good litigation solicitor in the UK can charge anywhere between £250 (€285) to £450 (€513) per hour for their services so it’s when they are instructed in the whole debt recovery process that matters. There are loads of solicitors out there who will send a “Letter Before Action” to your debtor, for a very small fee of around £25.00 (€29). The letter is printed on the solicitors headed notepaper and gives the debtor a heads up that you are intending to take things further, but these letters have a poor response rate, little impact and rarely lead to payment, leaving you with the option to then pursue the debtor through the courts, and this can prove expensive depending on the size of your debt and which action you decide to take against the debtor. The biggest factor to remember in all of this is that despite you paying the solicitor their fees and the court costs this does not guarantee you are going to be paid. You may need to enforce the judgement you are granted by the court, again at further expense without guarantee of payment. Or if you presented a Winding Up (Liquidation) Petition then the company could go into Liquidation or they could appoint their own Administrators or liquidators. Solicitors will also not investigate a debtors financial status, ability to pay or company status, so you could just be wasting your time and money.

Debt Collectors – who to trust

Before you decide to use a solicitor or lawyer, it’s worth considering the services of a debt collector first. Reputable debt collection agencies will work for you on a no collection no fee basis. Never, ever pay any of these agencies upfront fees or registration fees. There are a lot of unscrupulous people in the sector, who give the industry a bad name. So, just like the checks on your clients, check out the debt collection agency before you engage them.

If you are unsure of the agency you can ask them to supply references from some of its existing clients. Phone some of them to check that they are genuine. The debt collection agency should be well established and should have been trading for a number of years.

You should ask to see a copy of the debt collection agencies Terms and Conditions before instructing them to carry out a collection for you or signing any paperwork. Their rates should be clearly stated with no hidden charges.

In the UK the Financial Conduct Authority (FSA) recently took over the regulation of the debt collection industry from the Office of Fair Trading. In most other countries there will be other regulatory arrangements. You should never use an agency that is not registered with The Financial Conduct Authority. This applies to LSPs established outside the UK, but seeking to recover debts in Great Britain. A local debt recovery agency can often work better for you in such a situation.

Each UK agency needs to obtain the correct “permissions” from The Financial Conduct Authority in order to be permitted to collect debt. They will all be given a registration number, which is sometimes found on the agencies’ websites or their stationery. You should ask for that number and check it is genuine on the FSA website.

Contact us today

Think we could help your business? For international debt collection advice please call us on 0333 800 8919 or contact us online.