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Collecting International Debt
Collecting Debt from International Clients. Doing business overseas is a goal most companies seek to achieve as their potential client base increases substantially. Unfortunately, many of these businesses learn quickly that obtaining payments from clients outside of their borders can be a difficult task. Here are some challenges that businesses face while receiving payments across international borders.
Currency Exchange Difference Becomes an Excuse
Exchange rates are among the biggest challenges that businesses undergo when receiving business payments internationally. Different currencies are used from one country to another, making it difficult to transact in one currency as most businesses will have cash holdings in their native currency. As a result, there is a need to convert the currency during a transaction. That is intending to make sure the recipient gets a payment that matches the value of the shipment. The challenge with exchange rates is that they continuously change from one country to another.
They change dynamically, meaning you could finalize a deal right now, and the next minute the exchange rate could change. This makes it difficult to agree on the exact amount the buyer should send. The fluctuation of exchange rates happen every day, and there’s no easy way to avoid this risk.
If the seller accepts a certain amount at the time of the agreement, they may receive less than they should if the rates fall. Therefore, this makes business challenging to undertake or even reach an agreement on the value of the goods.
Differences in Banking Rules
Their best way to do international business is by transacting through banks however, the process has never been straightforward. When sending money through banks, buyers have to use banks that have branches in both countries. This means it can be challenging to submit payment if there is no banking relationship between the two countries.
Banks also typically take a lot of caution when processing international payments. Therefore, they ensure that all the communication required in a transaction goes through the bank from branch to branch. The problem here is that corporate communication may be time-consuming, and many buyers may not be willing to wait.
Errors are also a common thing in bank transactions. Although payments get processed electronically, some details require human input. Since humans are prone to error, International bank account numbers are often keyed in wrongly because they are long.
Such errors may cause the transaction to be unsuccessful. Depending on the rules of the specific bank, there has to be a procedure to correct such issues. It can also be time-consuming and thus affect business.
Red Tape in International transactions
Another big challenge that businesses find in international trade is the red tape. It affects the ease of doing business from one country to another. There are three aspects of the Red Tape in international business. First is the cost that businesses and consumers incur in transporting goods from the seller to the buyer. The fees may be high, making it expensive to ship with a standard container.
Research by the World Bank found that exporting with a standard 20-foot container costs the seller up to $1,060. On the other hand, importers have to pay up to $1,119 for the same container size. The costs of importation and exportation are an essential factor that affects international business.
The second aspect of red tape is the time that it takes to send a shipment from the seller to the buyer. This can also take a significant amount of time. The same research found out that exporting can take 9 days while importing takes 8 days on average.
Lastly, there is a lot of paperwork involved in international transactions. In a study by World Bank it was found that exporters typically have to present 6 documents before sending a shipment. Importers have to submit 5 papers on average for every international transaction. This can slow down business and make it a tiring process.
Screening International Companies For Credit Risks Is Difficult
Credit risks can manifest in two ways, depending on whether they are on the seller or buyer. During the transaction, there is one party that should bear the credit risk. However, no party is usually willing to take risks, and therefore, they expect one another to bear.
These risks can be thought of as a Pareto efficiency problem since if one party bears less risk, the other has to take more and vice versa. That is necessary if the seller and buyer are to strike a successful deal.
In most cases, buyers want the seller to suffer the risk. That is so that they receive the goods, sell, and pay after making a profit. Also, buyers may not be willing to bear the risk because they find challenges in prescreening international business because of limited knowledge.
Since resolving most international trade risks may be a challenge, it is best to turn to a collection agency when payment from an international client becomes a concern. These are companies that help to bridge the trust gap that exists between international business partners. Collection agencies typically only charge a fee when they successfully recover a debt making them a cost effective option. In addition to being a cost effective option, collection agencies typically have the tools to screen for credit risks to help you avoid companies that may end up being a potential problem.
Advantages of Using Collection Agencies
- Involving collection agencies is a stern measure that reflects on the magnitude of the issues. Debtors will therefore comply and pay faster when confronted since they fear their projection of the debt in their credit history.
- Debt collection agencies have the power to take matters into litigation if necessary and use attorneys who assist in debt extraction.
- The debt collection process is professional and client retention is possible if there are no ill intentions that remain after the collection.
- These agencies have the resources, finances, and workforce to get the job done Therefore involving them is cost-effective.
- Using them eliminates the legal risks involved in collecting debts on your own. Debt collection agencies have a vast knowledge of debt collection laws. Strict measures are therefore put in place to ensure the collection is legal.
- Debt collection agencies document the proceeding of the process in case lawsuits are filed against you in the future. The documents are also useful in case you plan on suing the client.