Sunday, March 24, 2013

Is Your Collection Services Supplier Breaking The Law?

     In Canada, all debt collection agencies must be incorporated in the provincial jurisdictions where your debtors are located. Further, your collection supplier must be licensed and post a client's trust fund bond in the province where your customers are located. Failure to do so contravenes the Consumer Protection legislation of these provinces.

     It is unlawful for a collection agency to attempt to collect from your customer if they haven't first obtained the proper licensing and bonding. Some creditors are told that the agency doesn't require a provincial license if the debtor is a corporate entity as opposed to an individual consumer; however this isn't the case. The various provincial consumer protection acts across Canada do not make the distinction between a corporate or individual consumer as it relates to debt collection activities.

     Fines can be levied against individual collectors and their employers for failing to comply with the requirement to be licensed. Levies of up to $10,000 and $100,000 respectively can be given to the offender.

     To protect your company's reputation in the marketplace and mitigate the risk of your funds disappearing from a collection service supplier who is being investigated or fined, we recommend taking the following precautions:

  1. Ask the agency for a copy of their current provincial license where your customer resides.
  2. If the agency uses an affiliate in a certain jurisdiction, (common in Quebec) be sure to get a copy of the affiliates license as well.
  3. While it isn't necessary in Canada, we recommend working with a company that carries Professional Liability insurance. This way you're covered in the event the agency is sued while working your accounts.
  4. And while not an absolute guarantee, check to see if the agency is a member of an industry professional association such as ACA International or the IACC (International Association of Commercial Collectors). Agency owners that go to the trouble of paying to be involved with these trade associations generally conduct themselves properly.
     Provincial authorities have checkpoints and safeguards in place to give both creditors and debtors some assurances that their accounts will be administered in a professional manner. Collection service suppliers that are not licensed offer you no protection if things go bad.

If they are not licensed and taking their chances, what else are they not telling you?

North American Negotiating Weaknesses

     As the North American economy picks up steam, business owners, who survived the 2008 financial crisis, are now looking to expand/develop their export markets into the BRIC countries of Brazil, Russia, India and China. When compared to Canada, the United States, and Mexico, the BRIC cultures are centuries old. And whose inhabitants grew up using the barter system where everything is negotiable. 

     Unfortunately North Americans have several ingrained cultural “weaknesses.” The major one’s are:

1.       We have a very strong need to be liked. (the worst kind of negotiator is the one who seeks the approval of others)

2.       We let our egos get in the way of the objective.

3.       We are reciprocity/compromise oriented.

4.       We are overly impatient: time is viewed as money (in negotiating, patience is money).

5.       We need to know the answers (vs. we are more comfortable with certainty rather than ambiguity)

6.       We are far too rational.

7.       We have an inordinate respect for deadlines.

8.       We detest silence.

     When selling into a foreign market, try to learn from those who’ve gone before you. Tap your Consulate in the country you’re considering selling into for their local expertise. Travel in to country for a while to get a better understanding of how business is conducted. And, above all, expect to be challenged by some of the counter-negotiation tactics listed above.

     If you’re considering selling on open credit terms, we highly recommend obtaining trade receivable insurance through such carriers as Euler Hermes, Coface International, and Atradius, to name just a few. Trade receivable insurers will insure a large portion of your receivable, so that in the event your customer doesn’t pay you on time, your insurance company will indemnify you and chase after your customer themselves.