Particularly challenging are the challenges facing foreign partners, whose credibility is much more difficult to verify in times of economic turmoil, and delayed settlement processes are very costly. Nevertheless, some entrepreneurs in Lithuania still tend to wait in good faith and try to recover debts after the end of quarantine. Why is delay the biggest risk today, and why are digital solutions so important in the face of these challenges?
In Europe, even before the pandemic, the most indebted countries were Southern European states: Greece, Spain, Portugal, and Italy. Debt levels in these countries ranged from 30% to 55%, depending on the sector, with about a fifth of debt to foreign business partners and suppliers. The pandemic has exacerbated these problems, with the richest countries in the European Union today at risk of rising debt, with Germany and France announcing the biggest recession since the Great Depression or World War II. There is no place in the world where businesses can feel safe, and tensions over delayed payments will only increase. Global business indebtedness is projected to grow by 15 to 30 percent, depending on the sector. Tourism and logistics are identified as the riskiest industries today.
Today, this situation has already affected Lithuanian businesses, whose foreign partners withhold payments without submitting a certificate of the fact of force majeure. The situation is exacerbated by the lack of tools and accessible data available today, especially for smaller businesses, and especially finding out the real reasons for postponed payment. Faced with such a situation, some entrepreneurs see no other way out and tend to wait for the quarantine to end, hoping that then the payments will move forward. However, today's experience shows that in this way businesses risk the stability of their own operations. These days we see many cases when foreign companies maliciously seek to delay payment for services provided in order to use foreign partner money as their turnover capital or else. And such a situation often causes a long and complicated debt collection process for businesses in Lithuania.
Instead of waiting and hoping for the best, it is extremely important for businesses today to respond proactively to late payments and to take legal action promptly. Of course, a good start always starts with an open dialogue, but it is equally important to use measures to prevent debtors, such as the digital preventive press, as well as to responsibly assess the most effective ways of informing the debtor - statistics show that percent debts can be repaid. This is where the biggest challenges lie.
Debt collection abroad is usually a complex and costly process. Most companies use third parties for this process – as lawyers, bailiffs, and other intermediaries, which makes it even more expensive. There is little that can be done by public authorities, whose role as intermediaries in recovering debts abroad is very limited. Therefore, in order to avoid costly debt collection processes, businesses today are choosing an alternative - the demand for digital debt collection solutions is growing rapidly. Digital debt collection options for businesses today provide an opportunity to quickly and efficiently inform debtors in compliance with all legal and non-statutory requirements. The technologies of the virtual auction process allow you to get the most flexible price and rely on the help of foreign partners around the world.
There is no doubt that a pandemic will only accelerate the improvement of digitization processes for debt recovery. Even before the pandemic, it is estimated that over the next decade, 75-80% of Debt collection procedures will be automatic - we will have an automated system that will be able to automatically write off debts from any account, the systems will automatically collect debts or identify which assets will be able to repay the debt. This is the future of debt recovery.
The pandemic has encouraged people to take even more advantage of the benefits of digital technologies in various areas of life, and debt recovery is no exception. Various fintech debt management solutions are extremely popular today in the UK, Germany, and the Netherlands. Although the digital debt collection process is still a new experience in Lithuania, these solutions are finding a place in our country's market as well. For example, the number of new users on the platform of the Lithuanian-based financial technology startup ‘Inform Debtor’, created by Lithuanians and operating on this principle today, increased by 30% during the first month of quarantine.
Thus, it is probable that due to the economic turmoil, growing tensions, and fintech solutions have already found a place in the Lithuanian market, the rapidly improving digitization processes of debt collection abroad will be a great help for businesses seeking to preserve their operations and manage cash flows professionally. We want to believe that the proactivity of Lithuanian businesses using new technologies will only increase.
The comment was prepared by Dovydas Varkulevičius, CEO of the international debt management platform ‘Inform Debtor’.
