The best and worst locations for debt collection

Study ranks countries by complexity when it comes to debt collection

Surveys that rank individual countries as good or bad, and easy or difficult environments in which to do business are both plentiful and wide-ranging.

The World Bank’s Ease of Doing Business probably takes poll position as a means of assessing how readily corporates can operate in different parts of the world, in terms of being able to carry out rudimentary corporate tasks. Transparency International’s corruption index gives useful insight into places that might require a geopolitical risk or governance assessment.

However, a recent survey from Euler Hermes, The 2018 Global Ranking: The Worst and Best Places in the World to Collect your Debts, gets to the nub of a crucial issue – the relative ease or complexity of collecting debts.

The 2018 edition of the trade insurer’s ‘collection complexity analysis’ looks at debt collection procedures across 50 countries.

The index ranks countries for collection complexity on a scale of 0 to 100, taking into account local payment practices, court proceedings and insolvency proceedings. Countries are deemed to be notable if they have a collection ranking under 40. Those ranked between 40 and 50 are deemed to have a high level of complexity; and 50 to 60, very high. Those countries ranked above 60 have high levels of complexity.

Among the key findings:

  1. Sweden, Germany and Ireland were ranked as the easiest locations in which to collect debts. Sweden and Germany both had a ranking of 30;
  2. Saudi Arabia, the United Arab Emirates, Malaysia and China were found to be the most complex countries for debt collection; Saudi Arabia had a ranking of 94;
  3. Australia and the US are the most complex among the developed economies surveyed. Australia was given a ranking of 54 and the US 55;
  4. Most of the easiest countries for debt collection are in Western Europe.

The survey found that good economic growth fundamentals don’t necessarily correlate with straightforward collection procedures and that complexity can come from various sources: local payment practices, court procedures and insolvency arrangements.

The survey ranked nine countries as ‘high’ for collection complexity, notably in Asia (Hong Kong, Japan and Singapore), but also in Europe (Greece, Italy, Poland and Romania). Latin America has three out of five countries with a very high collection complexity (Argentina, Chile and Colombia), while Africa has three (Cameroon, Morocco and Togo).

Complicating factors

Local insolvency proceedings are the main complicating factor when it comes to international debt collection. On average, they contributed to half of the collection complexity of countries. The most commonly referred to issue, one mentioned for almost all the 50 countries surveyed, was the low probability of recovering the debt in practice once insolvency proceedings have started.

Court-related proceedings presented the second-most significant source of complexity globally. The lack of a regional framework offering harmonised fast-track proceedings and a lack of flexibility in relation to reciprocity when enforcing foreign decisions were the two most frequently cited court issues.

The local payment context also added complexity (albeit less significantly than local insolvency and court-related factors). For 78% of the countries surveyed, a poor payment culture impacted collection, and for 68%, payment terms of more than 30 days were also a factor. China, India, Kazakhstan, Mexico, Saudi Arabia and South Africa were listed as having the most complex payment environments.

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