Why U.S. companies should stop writing off small debts in Europe
Culture, legal systems, and habits all differ from country to country. When dealing with debt collection, we find that corporate clients still view the world with their own set of values, beliefs, and education. We see this issue happening over and over again with U.S. companies.
Legal actions within the U.S. are typically difficult, expensive, and lengthy. Cases with lower amounts are often written off by companies because of the combination of low probability of collection and high attorney fees. In contrast, the legal environment in Europe provides a smooth and systematic process for debt collection. Many legal systems throughout Europe make it fast and cost effective to collect small debts.
We typically find that U.S. credit managers often treat their European debts the same as they treat their U.S. debts. European debt collection is completely different. Cases are often solved out-of-court, in some countries up to 95% of the time. There are plenty of quick and inexpensive procedures for undisputed claims in Europe. Therefore, it is common place to work on claims as small as $3,000 and above.
When European cases are disputed or litigated, European attorneys are no longer allowed to work on a contingency fee. This is sometimes seen as an obstacle with U.S. companies. Our data and experience shows us that it is cost effective to start legal proceedings with collections starting at $7,000. Most European systems provide the option to include recovery costs as well as principal from the debtor. Since the laws differ from country to country, it is essential for U.S. companies to be briefed about the potential costs and probability of success, prior to the start of a proceeding.
Knowledge is power. Once U.S. credit managers understand the need to hire a specialist for their European debt collection, they will in turn likely see a significant increase in their bottom line.