International Debt Recovery
A new report has revealed the Countries where recovery of debt is most complex.
With an ever-growing number of businesses entering the world of international trade, we see an increasing number of enquiries about debt recovery from outside the UK.
The third edition of the trade insurers Allianz Trade Collection Complexity Score provides a simple assessment of how difficult it is to collect debt, which can help to support decisions and manage expectations when you are trading internationally.
International Debt Recovery has always been a challenge and this new report produced by Allianz Trade sheds some light on those countries where the risk of not getting monies back are highlighted. This makes for valuable reading in an environment where global business insolvencies are set to rise (+10% in 2022 and +14% in 2023).
Knowing countries who present a greater risk can help you manage the risk to your business by way of forecasting and putting in place preventative measures and good credit control when dealing with customers in specific Countries.
The scoring covers 49 countries representing nearly 90% of global GDP and 85% of global trade.
The Allianz Trade Collection Complexity Score measures the level of complexity relating to international debt collection procedures from 0 (least complex) to 100 (most complex). The score combines the expert judgment of Allianz Trade’s Collection specialists worldwide and over 40 administrative indicators relating to: (i) local payment practices; (ii) local court proceedings and (iii) local insolvency proceedings. The score is then split into a four-modality rating system: Notable (score below 40), High (score between 40 and 50), Very High (50 to 60) and Severe (above 60).
Where is the best place to collect a debt? Unsurprisingly, Europe is still the easiest place to collect debts.
European countries account for the top 10 easiest places to collect debts. Sweden (with a score of 30), Germany (scoring 30) and Finland (scoring 32) are top rated.
New Zealand is the first non-European country to be ranked in the list at 12th (with a score of 36), followed by Brazil at 20th place (scoring 43).
The scoring suggests that in Sweden, Germany and Finland, the payment behaviour of domestic companies is good, and courts are efficient in delivering timely decisions, thus easing debt collection for companies. This stands in contrast to other European countries, such as France (10th – scoring 36) and Spain (11th – also scoring 36) where collecting debt remains extremely complicated when the debtor has become insolvent, especially as far as unsecured creditors are concerned.
Saudi Arabia (91st with only 3 points), Malaysia (78th) and the United Arab Emirates (72nd scoring 9) are closing the ranking in 2022. Despite some improvements in court-related complexity, international debt collection is three times more complex in Saudi Arabia than in Sweden, Germany or Finland.
Almost one in two countries has seen its collection complexity score reducing since previous ranking. The gap between advanced economies and emerging markets is still large. 14 out of 16 Western Europe countries stand at the less severe level of collection complexity.
Meanwhile, the United States of America at 32nd (scoring 55) and Canada being 29th (scoring 53) both post a very high rating.
On average, the Middle East, Asia and Africa are the three regions where debt collection is the most complex.
Nonetheless, this gap has been reducing over time. During the past four years, twenty our of forty nine countries have seen their collection complexity score decreasing. Covid-19 lead several countries to accelerate the reforms of their insolvency frameworks.
The report has also highlighted some improvements in terms of preventive restructuring frameworks such as we have seen in the UK. Australia and in the EU, where the Directive 2019/1023 is currently under transposition within the different Member States.
Saudi Arabia and China also showed some noticeable improvements. In these countries, the collection complexity scores reduced by -3 points and -2 points, respectively.
Despite this positive trend, international debt recovery is without doubt very complex but it is not impossible.
Pockets of collection complexities exist in all countries. Local payment practices in particular stand out in the Middle East. Court related complexities are slightly less frequent, notably within Western Europe and North America, but each occurrence is more challenging. Insolvency related complexities are the toughest and insolvency proceedings still explain half of the collection complexities around the world.
So which exporters are the most exposed to collection complexity?
Combining each country’s collection complexity score with their share of trading partners, Allianz Trade also calculates the exposure of exporters to international debt collection complexity in their report. Our clients, as well as ourselves can make good use of this data to assist with business forecasts and potential revenue.
Finland, Austria and Norway are the least exposed as their trade partners are countries where debt collection is less complex. At the other end of the spectrum, Asia stands out with seven countries topping the list of those most exposed to debt collection complexity due to international trade, being Hong Kong, Indonesia, Thailand, Malaysia, Japan, Singapore and India.
Of course, you would expect our message to be that if you are considering trading internationally then we strongly encourage our clients to have protective measures in place. You can stipulate payment terms which best suit your cash flow projections and the operational needs of your business. Providing your customer with clear payment terms so that your customers know when to expect invoices to be issued, and when you expect them to be paid will help you avoid late payments and disputes with your customers.
You can review the full report by following this link Collection Complexity (allianz-trade.com)
If you have any queries about this article, please contact Allison Thompson on 0191 2267878.