The Debt Collection Environment in Turkey

The US is one of the largest trade partners of Turkey (according to 2016 statistics). Turkey’s total export to the US was equal to 6.62 billion dollars in 2016. The total import from the US amounted to 10.9 billion dollars in the same year. Due to the substantial trade between the two countries and the recent fluctuation of the Turkish economy, we see an increase in payment defaults for US companies.

Status Update on the Turkish Market Economy

Since the failed military coup of July 2016, extra security precautions have been taken by the Turkish government. Consequently, the Turkish economy has been deeply shaken. Turkish companies have been suffering to finance their businesses and have become more dependent on loans. As a result, their indebtedness has risen. Due to the drastic increase of the Euro and US Dollar, the position of Turkish traders has weakened. This has caused a decrease in cash flow, therefore increasing payment defaults.

Positive signals

Leaving behind the referendum for the amendment of the articles of the Constitution and the late developments in the economy, the market has started giving better signals for the future. Especially in the sense of economic prognosis in comparison to the beginning of the year. This positive economic trend has given Turkish merchants more confidence. However, it is still early for these changes in the economy to have an impact. To be fair, more time is needed to be able to say that there is a general upward trend. Nevertheless, the Turkish market remains an attractive market to many sectors.

How to tackle the possible risks?

Late payments are the essence of daily trade. It damages cash flow and margin. Management of late payments is vital for an enterprise. There are several signals prior to the occurrence of late payments. For example, an increase in inquiries, disputes, excuses, and dishonored checks and a sudden decrease in orders. When doing business with a Turkish company, minimizing your risks of late payments is important.

When doing business with a Turkish company, keep in mind the following to minimize your risks:

  1. Know your trade partner well. If it is a new trade partner, it is very important to pre-check the financial credibility of your partner. This can be done by using credit reports of international financial institutions. In these reports, you can see their credit notes as well as their registered address, directors, and shareholders.
  2. Have clear contractual and payment terms. For this, protective legal knowledge is essential.
  3. Keep a good record of your contract (signed and stamped), purchase orders, invoices, and delivery records.
  4. Make sure that you have shared and negotiated your general terms and conditions with your trade partner to be applicable to the transactions.
  5. If the transaction involves high financial risk, Letters of Credit or Credit Insurance are recommended if it can be covered.
  6. Avoid accepting checks and promissory notes.
  7. Be professional and closely monitor the situation.
  8. Do not panic once your partner is in default of payments. Send your reminder and do not wait long to take action. Once there is a financial slowdown in the company you have to act promptly. The more you wait, the less chance you will have to recover your invoices in the short term. That is why it is always in your favor to have a contact with a collection lawyer or firm.

Contact

In case you have any questions regarding this topic, you are welcome to contact me without any obligation. Or, would you like to know more about doing business or collecting debts in Turkey? I am happy to help you out.