Foreign Affairs

Collecting delinquent foreign accounts is no easy task it requires determination and, in some cases the help of lawyers and professional bill collectors.

Tweet

In the fall of 1979, Van Carlisle, president of Fire King International Inc. in New Albany, Ind., dispatched his assistant export manager to Managua, Nicaraguhe -- then, as now, one of the world's more politically troubled spots. The man's mission? Collect the $12,000 the deposed government of Anastasio Somoza-Debayle owed the company for 12 fire-resistant filing cabinets it had ordered the previous year. The new Sandinista government, it turned out, promptly paid Somoza's bill -- and also ordered 14 more filing cabinets. "Everybody," says Carlisle, "has records that need to be protected."

Wresting receivables from foreign customers is seldom so simple. In most cases, persistence and outside help are required to overcome the barriers of language and distance. "When you get into the international area, you can't just call your customer on the telephone," notes Robert J. Hoag, vice-president of finance for The Jewett Refrigerator Co. in Buffalo. "Many times you don't know the laws and customs of the country. You need someone with that extra element of expertise to get your money for you."

Jewett, an exporter of refngerators to hospitals, laboratories, and morgues, engages the American Bureau of Collections Inc. (ABC), headquartered in Buffalo, to collect its delinquent foreign accounts, which generally total 2% to 3% of its overseas sales. "Usually," Hoag explains, "it's a case where the company has gone bankrupt or is just short of bankruptcy."

Foreign accounts also turn sour when buyers flat out refuse to pay or dispute the quality or quantity of the goods shipped. Another headache for exporters, especially in the Third World, is the shortage of hard currency, which can be readily converted into dollars or gold. When it is scarce, the seller's options are to wait until the country's monetary situation improves or to negotiate another, or a reduced, form of payment.

That latter tactic was taken by ABC and its representatives in the late 1970s. It negotiated a barter agreement with the Turkish government, allowing Turkish debtors to pay U.S. exporters with Turkish currency. The collection agency converted the currency into stronger currencies, then forwarded the money (minus ABC's percentage) to the U.S. exporters.

"Some of our clients had written it off already, so it was a blessing to get 45 cents on the dollar," ABC's international sales consultant, Lewis Shapiro, says of the Turkish arrangement. "Turkey today," he adds, "is doing better in the international marketplace, but it still [doesn't have] a free-flowing currency like the currencies of some of the European countries."

How big a problem are unpaid foreign accounts? The U.S. Department of Commerce doesn't keep such statistics but industry insiders estimate that, typically 1% to 3% of a company's export sales go uncollected. But for small businesses, the average may be higher. "Small companies," notes David Herer, vice-president and counsel of ABC, "take more risks, selling on terms other than a confirmed letter of credit. One reason is that they are eager to develop a new market opportunity, and, two, they aren't as well versed in the mechanics of foreign sales."

Once an account becomes delinquent, sellers have three options: They can try to collect the account themselves, they can hire an attorney who is experienced in international law, or they ean engage the services of a collection agency. The first step, the experts agree, is for sellers to attempt to recover the money themselves. "You don't want to turn it over right away, because you still have your customer relationship to think about," explains Herer.

Fire King, for one, contacts its delinquent accounts by telephone and telex. If it can't arrange for payment, it asks one of its people to pay the customer a visit during the salesperson's next sales trip. The man who collected the Nicaraguan account, for example, stopped in Managua prior to making sales calls on customers in Central and South America. "But if you have tried repeatedly to collect the account without any response," notes Herer, "you shouldn't wait any longer. The attitude of many foreign companies is that they can pull a fast one because the Americans won't put out the necessary effort or money to pursue the debtor."

The next step, if the invoice remains uncollected, is for the buyer to decide whether the account should be written off or pursued further. If it is pursued, an attorney or bill collector may be the answer, although that can be expensive, given the shortage of professionals experienced in international collections.

"Small companies are faced with the prospect of hiring fairly high-priced American counsel, who then makes contact with a foreign lawyer, who also tends to be fairly high-priced," says Tom Motley, a partner in the Boston law firm of Gaston Snow & Ely Bartlett. "By the time you get finished, the client is likely to look at that series of events and say, 'It's going to have to be $100,000 in receivables before I lift a finger to do anything.' You have to be really persistent, and, to be really persistent, there has to be a lot of dough involved."

 1 | 2  NEXT