How to Manage International Collections

What is international debt collection?

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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How does international debt collection work?

International debt collection comprises the same four steps as domestic debt collection:

1. Standard debt collection methods. If you’ve ever followed up with a nonpaying client via your usual communication channels before, then you’re familiar with standard debt collection methods. International debt collection should likewise begin with this step despite the complexities of gathering money from clients based outside your borders. For long overdue payments, you may want to hint at the possibility of legal action.
2. Hiring a collection agency. If a client continues to avoid paying their debt well after your invoice is due, you may want to hire a collection agency. The agency will communicate with your client to work toward getting your debt paid. Before you move forward with this step of the process, make sure you’re choosing a company that is capable of getting the job done.
3. Legal actions. Another advantage of using a collection agency to collect on a debt versus pursuing debt recovery yourself: Collection agencies can make changes to a debtor’s credit report or take other legal actions that incentivize debt payment. These changes and actions occur within the debtor’s country rather than yours. However, they don’t always result in payment, which leads to the final step in international debt collection.
4. Legal rulings. If the collection agency moves your collections case to court, eventually, a judicial ruling will be issued. This ruling is binding, and your debtor must adhere to it. If your debtor fails to comply with legal rulings, you can request enforcement from the authorities in the debtor’s country. However, enforcement, and the rulings that precede it, may look different depending on where your debtor is based.

International debt collection laws

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.

Tips for collecting debt internationally

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:

1. Choose the right debt collection partner.

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.

2. Choose a debt collection partner with appropriate experience.

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.

3. Reassess the situation before hiring an international debt collector.

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:

• One more request never hurts. Sometimes, all a nonpaying client needs is a gentle nudge to issue payment, especially if your payment is only slightly overdue.
• Late fees can make a difference. Other times, reissuing an invoice with a late fee (or merely threatening to do so) can be enough to compel the client to pay. You’ll also avoid paying a collection agency if you take this approach.
• Collection agencies can burn bridges. If a nonpaying client is among your biggest or most loyal customers, you may want to wait to hire a collection agency until you have absolutely no other recourse, because it may damage the relationship.
• Not all invoices are worth sending to collections. It’s one thing if a client owes you $10,000, it’s another if $100 is on the line. Granted, no amount of unpaid debt is good for your business, but by the time you receive the $100 you’re pursuing, you’ll likely have spent far more than that to get it. This notion brings us to the last point you should consider before hiring a collection agency:
• Debt collection can be expensive. Hiring a debt collection agency means that you’ll lose a portion of the debt you’re owed. That said, if your unpaid invoice is well overdue and quite valuable, you may still want to hire a collection agency. Otherwise, it might be better to accept the loss, leave the client behind, and find new clients. The money you make from these new clients may outweigh the loss.