Collecting Unpaid Invoices in the Philippines: A Chaotic Task!

The Philippines, an island nation in Southeast Asia, presents a complex environment for collecting unpaid invoices.

Although English is widely spoken and the legal system is based on the American model, there are numerous unique challenges companies face when trying to collect debts in this country.

Language and Culture

The Philippines consists of over 7,000 islands with a diverse population that speaks multiple languages.

In addition to English, which is often used in business settings, many Filipinos speak regional languages. Graham Lacey (CEO TCM Philippines) explains: “Our employees are fluent in multiple (usually four) languages.

This knowledge of languages, along with the understanding of various cultural and legal nuances of the country, is crucial for successful debt collection in the Philippines.”

Socioeconomic Context

The country experiences extreme wealth inequality. A small elite holds 99% of the wealth, while the rest of the population lives with only 1%.

This elite not only controls the economy but also the political landscape, significantly impacting the debt situation in the Philippines. Wealthy Filipinos often try to smuggle their money out of the country through dubious contracts and financial arrangements.

Many foreign creditors are unaware that they are being used for these financial schemes!

Graham adds: “This affects unpaid invoices for foreign creditors in the Philippines. Many foreign creditors are unaware that they are being used for these financial schemes, which has serious consequences.”

Legal Challenges 

The statute of limitations for debts following a written contract is 10 years, and for debts without a contract, it’s 6 years. However, the legal system in the Philippines is inefficient and bureaucratic. Although there is a unified legal system across the country, it can take months before a legal procedure even begins.

Graham explains: “All relevant documents must be submitted and certified by a lawyer in advance, resulting in significant costs and delays. The case essentially needs to be proven upfront, whereas in countries like Australia, documents are only required if the debtor disputes the claim. Legal fees must also be paid in advance, as lawyers spend months working before the case even starts. This makes legal proceedings in the Philippines three times more expensive than in countries like Indonesia and Malaysia.”

Physical Barriers

Another physical challenge in debt collection in the Philippines is the poor infrastructure.

Graham notes: “The legal process must begin in the location closest to the debtor, which is usually Manila. However, the main court in Manila is located in the city center, a chaotic, impenetrable city with insane traffic. It takes half a day just to navigate the traffic, and if any documents are missing, you quickly lose a significant amount of time.

For creditors, it is often impossible to physically contact debtors.

Additionally, many debtors do not have a fixed address and can easily switch (prepaid) SIM cards, making them difficult to trace. The country lacks a reliable postal service, and many people live in makeshift homes without an officially registered address. The government puts no effort into mapping out slums administratively, which can be completely wiped out by the next storm. Only wealthy citizens have an official address.”

This makes it almost impossible for creditors to physically contact debtors, especially in a B2C context. Graham says: “Despite these challenges, we conduct on-site visits. Our local teams navigate using WhatsApp and GPS. While the Philippines doesn’t have the best reputation, our employees do not feel unsafe during these visits. We also only handle B2B cases for the TCM Group.”

Thorough Preliminary Research

Given the many challenges, it is essential to be well-prepared before attempting to collect unpaid invoices in the Philippines. Graham advises: “Do some research in advance, conduct a credit check, and have an on-site visit done. These actions may cost time and money, but it’s a small price compared to the problems and expenses that may arise later.”

If you have any questions about collecting unpaid invoices in the Philippines, please do not hesitate to contact us at s.dereze@tcm.be, or +32 498 29 29 14.

9/09/2024

Collecting Unpaid Invoices in the Philippines: A Chaotic Task!

The Philippines, an island nation in Southeast Asia, presents a complex environment for collecting unpaid invoices.

Although English is widely spoken and the legal system is based on the American model, there are numerous unique challenges companies face when trying to collect debts in this country.

Language and Culture

The Philippines consists of over 7,000 islands with a diverse population that speaks multiple languages.

In addition to English, which is often used in business settings, many Filipinos speak regional languages. Graham Lacey (CEO TCM Philippines) explains: “Our employees are fluent in multiple (usually four) languages.

This knowledge of languages, along with the understanding of various cultural and legal nuances of the country, is crucial for successful debt collection in the Philippines.”

Socioeconomic Context

The country experiences extreme wealth inequality. A small elite holds 99% of the wealth, while the rest of the population lives with only 1%.

This elite not only controls the economy but also the political landscape, significantly impacting the debt situation in the Philippines. Wealthy Filipinos often try to smuggle their money out of the country through dubious contracts and financial arrangements.

Many foreign creditors are unaware that they are being used for these financial schemes!

Graham adds: “This affects unpaid invoices for foreign creditors in the Philippines. Many foreign creditors are unaware that they are being used for these financial schemes, which has serious consequences.”

Legal Challenges 

The statute of limitations for debts following a written contract is 10 years, and for debts without a contract, it’s 6 years. However, the legal system in the Philippines is inefficient and bureaucratic. Although there is a unified legal system across the country, it can take months before a legal procedure even begins.

Graham explains: “All relevant documents must be submitted and certified by a lawyer in advance, resulting in significant costs and delays. The case essentially needs to be proven upfront, whereas in countries like Australia, documents are only required if the debtor disputes the claim. Legal fees must also be paid in advance, as lawyers spend months working before the case even starts. This makes legal proceedings in the Philippines three times more expensive than in countries like Indonesia and Malaysia.”

Physical Barriers

Another physical challenge in debt collection in the Philippines is the poor infrastructure.

Graham notes: “The legal process must begin in the location closest to the debtor, which is usually Manila. However, the main court in Manila is located in the city center, a chaotic, impenetrable city with insane traffic. It takes half a day just to navigate the traffic, and if any documents are missing, you quickly lose a significant amount of time.

For creditors, it is often impossible to physically contact debtors.

Additionally, many debtors do not have a fixed address and can easily switch (prepaid) SIM cards, making them difficult to trace. The country lacks a reliable postal service, and many people live in makeshift homes without an officially registered address. The government puts no effort into mapping out slums administratively, which can be completely wiped out by the next storm. Only wealthy citizens have an official address.”

This makes it almost impossible for creditors to physically contact debtors, especially in a B2C context. Graham says: “Despite these challenges, we conduct on-site visits. Our local teams navigate using WhatsApp and GPS. While the Philippines doesn’t have the best reputation, our employees do not feel unsafe during these visits. We also only handle B2B cases for the TCM Group.”

Thorough Preliminary Research

Given the many challenges, it is essential to be well-prepared before attempting to collect unpaid invoices in the Philippines. Graham advises: “Do some research in advance, conduct a credit check, and have an on-site visit done. These actions may cost time and money, but it’s a small price compared to the problems and expenses that may arise later.”

If you have any questions about collecting unpaid invoices in the Philippines, please do not hesitate to contact us at s.dereze@tcm.be, or +32 498 29 29 14.

9/09/2024