Debt collection in Peru
By Gonzalo Calle Morelli
If you are doing business in Peru or planning to do it, here you have some information and advises which could help you to decide the most secure way to do it.
If your client tells you that issuing a letter of credit in Peru is very expensive, you have to believe him because it is certainly true. Other alternatives, however, requires that you are aware of its consequences. One of the usual and inexpensive alternative is to issue a Promissory Note, to be signed in Peru the most suitable are : Letra de Cambio and Pagaré.
When you use this alternative you have to take care about the following:
1. Local Jurisdiction.- Some companies requires its Peruvian client to sign a contract where it establishes jurisdiction of foreign courts. That will not be advisable since in that sense you probably will not able to execute the Promissory Note in Peru. Besides, you will have to seizure or get a lien on assets which for sure are located in Peru.
2. Promissory Notes.- In Peru PN are enforceable only if they are issued according to law, so it is not a good idea to issue it according to a foreign country regulation. Besides, in order to avoid misunderstanding it is also better to issue it in Spanish.
3. Guarantor.- It is better to require your client a guarantor who should sign also the Promissory Note. If the guarantor or your client is not a company be sure to get its wife’s signature too, since law requires that, if you will seize some asset or goods which belongs to the couple.
4. Procedure.- Some Promissory Notes , when payment time is over, requires to be presented before a Notary public and others do not (according to a new law). Therefore keep in mind to issue it without this requirement since you can lose one of its most important legal effect of the Promissory Note if you do not fulfill this requirement on time.
5. Debtor location.- When you suit someone in Peru you have to look first where the Defendant is located since the judge of that location is the only empowered to process him. Lima is the capital city and if your client’s address is located here, then you will not have problems to find all necessary conditions to collect your debt ( fast communication; law firms, clerical people; agents; bilingual personnel etc) as you have in major cities; however, the Defendant is located outside Lima, then you could face some problems to deal with finding the best resources.
Therefore, the best way to deal with this problem is to sign with your client a short contract where both companies agree that all legal problems should be solved by judges and Courts located in Lima.
6. Attorney´s fee.- Normally, a collection debt, before filing a law suit, is carried out by lawyers or law firms, if you do not have an agent or representative in Peru. Fees are establish as a percentage of total debt to be recovered. If a law suit is filed the same rate applies but some times fix fee is agreed if the case requires some special time to evaluate it or to give its opinion.
7. Law suit timing.- A law suit in Peru normally lasts more than what is established in the law. A process, can last, on average, 12 months. It will depend if the case is quite clear or not, if the Defendant has some argument against the plaintiff or finally according to the judge’s work load. Sometimes an extra-trial arrangement could be advisable.
8. Court´s expenses.- Any law suit has certain judicial fees and costs to bare. A law suit, in general speaking, is not expensive. However, when you want to seize some asset by a judge’s order you have to pay a special tariff according to its value. For instances: a seizure which amounts U.S. $ 280,000 or more requires to pay a tariff of U.S. $ 1,000.00 .
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