3 Useful Tips About Debt Recovery in Brazil
Over the past years, Brazil's economy has grown to become the world's eighth-largest by both nominal GDP and GDP (PPP). This rapid growth has led to a lot of foreign collaboration between Brazil and the EU and as such business to business (B2B) dealings have also increased.
The payment behaviour of domestic B2B dealings in Brazil is reasonable however, this is not always the case with international business dealings. This is due to the fact that the Brazilian currency has recently depreciated in value which has also impacted the payment culture in Brazil.
If you have been conducting business with a Brazilian customer who has not paid your invoices, you are heading towards a debt collection scenario.
Debt collection in itself is divided into two parts: extrajudicial and judicial. In this blog, I will give you helpful tips regarding debt recovery from Brazilian debtors.
Given the length and cost of legal action in Brazil, chances of obtaining enforceable judgments in a timely manner are low and it is preferable to consider amicable arrangements and specialist debt collection methods as a means to avoid domestic courts.
1. Precautionary Measures to be Taken to Avoid Debt Recovery in Brazil
Before approaching the subject of extrajudicial and judicial collection in Brazil, I would like you to take note of the following suggestions:
- investigate the financial data and background of the company you are going to conduct business with;
- check on Brazilian court websites (this is different for each state) if the other company has pending lawsuits, judgments or other legal claims against them;
- make sure that you have written and signed agreements, as it is necessary in Brazil to have written proof, supporting documentation and signatures of both parties on all important documents, in order to increase your chances of success in a Brazilian court.
2. First Steps in Debt Recovery
If your Brazilian debtor is leaving your invoices unpaid, it is advisable to resolve this issue during the extrajudicial phase.
This is because the length and cost of a legal action in Brazil, and the chances of obtaining an enforceable judgment in a timely manner, is quite low. Thus, it is preferable to carry out debt collection in an amicable manner and avoid taking the matter to court.
The extrajudicial approach is a way to:
- negotiate the debt;
- to make an installment plan;
- to provide discounts;
- to extend payment deadlines that are feasible to the debtor’s company.
This phase includes sending letters, making phone calls and trying to negotiate with your Brazilian debtor. The first step is always to send the demand letter by registered post to ensure that when your debtor receives it we get a notification of receipt.
3. What to do if the Extrajudicial Phase has Been Unsuccessful?
If the extrajudicial phase has not lead to payment, your final resort will be the judicial approach.
As explained above, this is not the easiest route. The problem with judicial proceedings in Brazil is mainly that the judiciary system is extremely slow and very bureaucratic. Currently, lawsuits may take three to five years to reach a final judgment.
In order to go legal in Brazil, the following documents are necessary:
- signed contract;
- proof of delivery of goods/services, etc.
In addition to this, all documents have to be translated into Portuguese by a sworn translator.
To summarize, if you would like to conduct business in Brazil, make sure you research your Brazilian customer thoroughly and have everything documented properly and in writing.
If you still have questions regarding debt collection in Brazil or if you have a Brazilian debtor who is not paying, get in touch with me; I will be happy to help you.