Waiting for overdue payments is nerve-wracking, and not only because they test your patience. Late payments strain your cash flow and your relationships with your clients. With international clients, unpaid debts can be even more concerning, since exchange rates are constantly changing. International debt collection can be significantly more challenging than domestic collection. If you work with customers and clients in foreign countries, it is important to understand how best to collect on an unpaid debt.
International debt collection is the act of pursuing money that is past due from customers based in another country to compensate you for goods or services provided to them. The first step in the process is to communicate your desire to get paid to the international client, but you may need to hire an outside service to collect the debt. If your methods aren’t working, you can hire a collection agency to deal with nonpaying customers – even if those customers live outside your country.
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International debt collection comprises the same four steps as domestic debt collection:
When collecting domestic debts, you’re probably somewhat familiar with how the process goes – after all, the same laws govern both you and your debtor. However, in international debt collections, things work differently, as there are no international laws governing debt collection.
Instead, debt collection proceedings against a client based outside your country must follow the laws of the client’s country. As a result, if you’re pursuing debts from a German client, but your company is based in the U.S., then German debt collection law guides the process. The collection agency you choose should have experience working with the laws in your client’s country.
Additionally, to successfully enforce an international debt collection judgment, a debtor must live in a country with valid international agreements. In Europe, for example, the Lugano Convention and Brussels I Regulation guide international debt collection.
International debt collection should occur in accordance with the laws of the debtor’s country or international agreements such as the Lugano Convention and the Brussels I Regulation.
International debt collection can be a complex, drawn-out process; however, you can make it less overwhelming and more efficient by following these four tips:
Most discussions about recouping debts from nonpaying clients involve the prospect of collection agencies, as these companies specialize in debt recovery. This specialty isn’t quite something that every creditor has – a freelancer, for example, might not have the expertise or time to pursue an unpaid invoice while doing their usual work. However, in some cases, hiring a debt collection attorney instead of an agency may be smarter.
If you choose to move past standard debt collection methods, speak to both collection agencies and lawyers experienced in international debt collection to determine which option better suits your needs. The answer may depend on the country where you’re pursuing debt collection, as some countries’ laws favor attorneys seeking debt collection over agencies doing the same. Alternatively, if you expect a contested claim from the customer, choose a lawyer.
As mentioned earlier, some debt collection agencies have more experience pursuing debts in a given country than other agencies. Ask the potential agencies you’re considering hiring for their track records pursuing international debts, and only agree to work with a service when it can show clear successes in your client’s region.
If you can’t find an American collection agency with experience in your desired country, try contacting agencies based in your client’s area. These agencies will be intimately familiar with the debt collection process where your client lives. If the agency works with international clients, it might be a good match.
When collecting international debts, choose an appropriate partner and carefully consider the potential ramifications of hiring a collection agency.
It’s understandable to want your debts paid as soon as possible; sometimes, hiring a debt collection agency isn’t the answer (at least not yet). Here are some things to keep in mind before you make the leap: