THE PRE-LEGAL DEBT COLLECTION SECTOR IN TURKEY

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THE PRE-LEGAL DEBT COLLECTION SECTOR IN TURKEY

 


By Ayşe Burcu Arslan (Managing Director of ARS Consultancy – Turkey)

In this article, we will take a look at the experience of the pre-legal debt recovery sector and the obstacles of establishing a ‘debt collection culture’ in Turkey with one of our prestigious partners in Turkey who we have been working with for the last 3 years – ARS Consultancy.

In Turkey, just like many other countries, the legal bodies and lawyers have always been engaged with the local and international collection cases which were considered to be the only solution of debt recovery for many years. This makes it clear why the introduction of the pre-legal debt collection sector has been a relatively new business area in Turkey.

Although the common notion of debt collection agencies being specialized in pre-legal debt recovery has been established in many countries of Europe and America for many decades, the establishment of pre-legal debt collection via collection agents in Turkey has a very short history. The lack of defining and governing laws of pre-legal services for the past many years, postponed the implementation and availability of various modern services supplied under the term, “Pre-Legal Collection Services.”

Ms. Ayse Burcu Arslan, the founder and director of ARS Consultancy, highlights the necessity of the ‘pre-legal debt collection culture’ in Turkey. Historically speaking, people have a tendency to assign a lawyer if there is a debt to trace and this hindrance constitutes the main pillar of the ‘debt collection culture’. “A lot of patience and attention is required to shape this culture by educating both the creditors and debtors about who we (collection agents) are, what we do and why we are here”, adds Ms Arslan.

Though not many, in recent years some new enterprises were established in Turkey with the aim of providing solutions to international receivable problems both in Turkey and in other countries around the World. These young establishments, similar to ARS, have the privilege of both; being part of the various dynamics of this sector in Turkey and also taking the responsibility of creation and development of the ‘pre-legal debt collection culture’.

With adaptation to the international standards of pre-legal debt collection (Fair Debt Collection Practices Act and Association of Credit and Collection Professionals), the business world and financial circles have recognized that by professional collection agencies, not only the overdue cases managed but also their customer relation and reputation is protected.

The concept of soft collection methods with the aim of reaching an amicable settlement before court has been another barrier in the establishment of the debt collection culture in Turkey, especially in terms of ‘trust’ and ‘transparency’. The negative connotations have mostly been identified with pre-legal debt collection in Turkey, like in many other countries. It necessitates special attention to use ‘transparent’ means of collection by focusing and prioritizing the importance of communication, mediation, conflict resolution, careful analysis of documents/evidences and of course providing alternative solutions, debt reconstruction and so on. This starts with a qualified team united with ‘solution’ oriented training programs aiming at a professional and smooth process management of pre-legal debt collection. Ms Arslan, underlines the importance of such trainings and a qualified team by referring to the high rate of success (on average 78%) in the pre-legal debt recovery sector in Turkey during 2011 and 2012.

Generally, collection of receivables may be very troublesome and costly, especially in cases where debtors and creditors are located in different countries. Sometimes, that may keep many companies away from following up the debts and invoices due, because of the complicated and prolonged process and also due to the costs that may occur for the services taken.

However, recently this scenario has changed and collection cases do not necessarily have to end up with financial losses for the creditors. The services supplied by Debt Collection agencies facilitate the follow-up process and reduce the costs to a great extent. To summarize this in a concrete way, below are the advantages that debt collection agents contribute:

  • Debt collection agencies are proficient in extracting the unpaid debts, and debt collection consultants who are specialized in pre-legal methods are of high importance.
  • The success rates of debt collection agencies are much higher than other companies since they have specific technical knowledge and tools to follow the collections globally through their partners.
  • The complicated and time consuming debt collection process, legal action and proceedings are handled by agencies without any action on the part of the company itself; in this way companies save a lot of time for their core business activities.
  • Debt collection agencies are specialized partner for companies which have the ability to act on behalf of the creditors with their their required technical skills and sources.
  • Collaborating with the debt collection agencies is also advantageous for the indebted companies, since their prestige is restored as they repay their bad debts.
  • The involvement of the debt collection agencies, as third parties, prevents the relations of the companies and their customers from being damaged.
  • Recovery of the bad debts is for the benefit of national economies since recovery of the debts decrease the costs of the companies and keeps the consumer prices from increasing.
  • The recovery of the debts also means that there will be more taxable income which will in turn benefit the country in general.

All those gains and advantages refer to and underline once more, why pre-legal services are crucial for any creditors or invoicing parties. This gains more importance, especially when the parties are located in different countries. Inspired from this perspective, Ms Arslan has aimed its company, ARS Consultancy to focus on international claims only; meaning that either their clients are from outside Turkey and they provide pre-legal collections in Turkey, or the vice versa.

No win- no fee approach for charges, custom tailored services that are very specific to any particular client and case, professionalism, transparency, well cared and happy debtors, sustained business relations between debtors and creditors are some very concrete gains of modern pre-legal collection services; they have been attracting many creditors and they will be still adding great value to local and global trade and business chain. Meanwhile, the debt recovery sector itself will be at more solid grounds with growing portfolio of customers and also with the regulations that are expected to be enacted very soon for both local and global markets.