Debt Collection and Currency Conversion
Debt Collection and the importance of Currency Conversion is for International Debt Collection Agencies
The easier you make it for the debtor to pay a debt, the more successful you will be at collecting a debt. This simple statement requires that the debt collection agency you use to collect your unpaid invoices pays attention to detail at each stage of the collection process. And when it comes to cross-border debt recovery, more factors come into play. Currency exchange is one of these factors.
Receipt of instructions to collect a debt
When collecting a debt locally for a client based abroad, collection will be more successful if the debt is converted in the local currency. Why? Well, this is quite obvious: the debtor will find it easier to pay locally, in local currency, and will often prefer this option rather than make one or several international funds transfers, incur bank charges. When paying in instalments, it will be easier for a debtor to organise a recurring local bank to local bank monthly payment such as a Standing Order in the UK for example.
Which exchange rate is the appropriate one to choose?
Each debt is born in a determined currency. This is the currency of the contract, and the debt to be cleared today still is the debt in that original currency.
This means that the rate of conversion to take into consideration is today’s rate, not the exchange rate at the time the debt was due originally.
But was is the today’s rate?
The currency exchange rates you immediately find when you search online are likely to be the interbank live exchange rates. No commercial transactions can be made at these rates. So using the rates shown on websites such as XE.com or oanda.com are unlikely to fully clear the debt in the original currency.
The rate to use if the local rate you are able to buy or sell currency with your own bank. Banks usually publish their buying and selling rates for all currencies each day. The commercial currency rates offered by our bank for electronic transfers or payments will show the rates that we can buy or sell the main currencies on a particular day: https://personal.natwest.com/global/commercial-currency-rates.html
If you are in the UK and you want to pay a debt for 1000 EUR to a creditor, you would buy Euros, and therefore get the “bank sells Euros” rate at on that day. Say it is 1.1238 EUR, then it will cost you GBP889.84 to clear your 1000EUR debt.
As a UK based debt collection agency, when we convert a debt into Sterling for collection in the UK, we need to reflect the exchange rate the debtor would get if he was to pay the creditor directly himself. So, this is also the exchange rate we use.
These exchange rates are local. By this I means that they vary from one country to the next. Therefore, it is the debt collection agency in the country of the debtor that should convert your debt. Don’t try and tell them what the rate is in your country.
This is the most appropriate and fairest exchange rate to use for all concerned.