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Debunking Four Myths About International Debt Collection

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“The borrower is a servant to the lender,” says a passage in The Bible, but if you are the creditor on an unpaid loan, it can seem like it is ultimately the other way around. Trying to recover funds from a debtor who is abroad can pose many legal challenges, not the least of which is jurisdiction.

However, international debt is collectible, despite many myths to the contrary. If you are owed money and are beginning to despair, take note of four common myths that can stand in the way of collection. Also, keep in mind that business-to-business debt collection has its own set of laws; be sure to review this B2B debt collection policy guide before deciding how to act.

International Debt Is Best Left As A Tax Write-Off

Creditors who fear that chasing after debtors abroad is too complicated or is bound to fail, sometimes resort to deducting the bad debt from their gross income to work out their taxable income. It isn’t all so simple, however, since tax authorities demand that “To show that a debt is worthless, you must establish that you’ve taken reasonable steps to collect the debt.”

Not only should you show you made a genuine effort to receive the funds back, but you should also consider the effect that losses have on creditworthiness.

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In essence, a reported loss can bring about reputational damage to your business, making you seem like a less stable business for future investors to place their trust in. While reducing the impact of debt on creditworthiness is possible, it is best to keep your slate completely clean from the outset.

You Have To Bring Your Case Before A Court In The Debtor’s Place Of Residence

When loaning funds to an individual or business, including a jurisdictional clause is vital if a conflict should arise. If your contract happens to have one, then you can proceed to bring a case against the debtor in the stipulated jurisdiction.

A simple governing law clause stating that the contract shall be a government “in accordance with the laws of” a given state is usually enough if the deal involves local goods or services.

Still, if it means the international sale of those goods or services, then it should contain a clause expressly excluding the Convention on the International Sale of Goods and any other binding convention or treaty.

Contacting A Debt Collection Agency Is A Last Resort Measure

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An international debt collection agency can be a wise company to contact from the early stages of collection, to let debtors know you intend to receive payment despite the physical distance.

Relying on a professional service will also make the process easier and smoother since the agency itself can fulfill bureaucratic and administrative necessities.

Of course, you can expect to pay a commission for the service, but depending on how much you are owed, the agency could be worth the fee or commission they charge.

Collecting An International Debt Will Take Years

The older a debt is, the harder it may be to collect it. This is why you should aim to receive amounts due as they become payable, contacting an international agency promptly. Obtain a general timeline, and deal only with a reputable firm to ensure you don’t need to continually ask for updates (these should be offered to you regularly).

Debt collection may take less time than you think, with the average amicable case taking only 90 days or so to handle. Agencies usually charge a surplus if the debt is old, so try contacting them as soon as is reasonably possible.

Just because the parties you are dealing with are abroad, it does not mean you should accept international debt as a standard business loss. Either enlist the help of a lawyer who specializes in this field or an agency specializing in foreign debt.

You will typically be charged a commission if the collection is successful, so before simply writing the debt off in your taxes, try to obtain as much of the full amount owed as possible.

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Lucy Hunter
Lucy Hunter
Lucy Hunter is senior columnist, editor and author who likes to write on Finance and Internet.

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