Receivables management companies in Serbia and the region

1. Background

Receivables management companies are a diverse group of businesses. Their operations cover a broad range of activities, from advising clients on how to better manage their accounts receivable, to purchasing accounts receivable, to taking other action to ensure recovery by either voluntary or compulsory means.

2. History

Businesses specialising in receivables management first emerged in the 1800s, when most capitalist European countries began to abolish debtors’ prisons. This change in government policy was not a major issue for creditors whose accounts receivable were secured by collateral or similar assets, but creditors holding no such collateral found themselves unable to collect on their claims. It was against this background that the first companies were founded specifically for managing such non-performing accounts receivable.

Today, two centuries on, debtors’ prisons would be unthinkable in any modern country. It is worth noting, however, that being incarcerated allowed people in debt, who were often unable to find work, to become employed or learn a trade, provided their lives were not cut short by disease due to poor sanitation. One cannot but notice that a similar arrangement (minus the disease and inhumane living conditions) could be highly attractive for today’s debtors who lack assets or income.

In the region, Montenegro provides a good example of regulating receivables management companies.

3. Montenegro

Receivables management is governed by the Montenegrin Law on Financial Leasing, Factoring, Purchasing of Accounts Receivable, Micro-Credit, and Credit Guarantees. As the title of the legislation suggests, the rules make a clear distinction between factoring and purchasing of accounts receivable. The law allows purchases of accounts receivable by businesses specialising in the purchasing of accounts receivable, banks permitted to engage in these transactions by the Central Bank, and other companies allowed to purchase accounts receivable pursuant to specific legislation. The law defines these companies as businesses incorporated as joint-stock companies or limited liability companies with a minimum capital stock of 200,000 euros whose sole activity is purchasing of accounts receivable. The firms must receive licenses from the Central Bank, whereupon they have 30 days to register with the company register. Banks wishing to purchase accounts receivable may apply for licences or special approvals from the Central Bank. As such, in the Montenegrin arrangement, the Central Bank is both the licensing and the oversight authority for receivables management, excepting for companies that engage in this activity pursuant to specific legislation.

4. Albania

Similarly to Montenegro, Albanian law requires receivables management companies to obtain licences from the Central Bank and the financial services regulator. Here, firms specialising in accounts receivable management can be incorporated as either non-bank financial institutions or micro-lenders. The Albanian system requires a minimum capital stock of 50 million lek (some 425,000 euros), and the founders must submit a notarised statement attesting that the capital stock is not the proceeds of a loan or advance payment made by a third party, and a duly substantiated asset origin declaration. In contrast to the Montenegrin rules, to be licensed an Albanian receivables management company must first be registered.

5. Bosnia and Herzegovina and North Macedonia

The relatively closely detailed rules in effect in Montenegro and Albania are yet to be adopted by other countries in the region. North Macedonia and Bosnia and Herzegovina, for instance, provide no special rules for establishment or licensing of these businesses. In effect, companies intending to manage accounts receivable can incorporate just like all other businesses and require no central bank approval.

6. Serbia

Unlike Montenegro and Albania, Serbia does not have specific legislation in force that regulates receivables purchasing. Assignment of receivables is governed by Articles 436 to 445 of the Law of Contracts and Torts. A separate Factoring Law is also in effect in Serbia. None of these regulations, however, govern the incorporation, organisation, and operation of businesses specialising in the collection of accounts receivable as distinct from factoring companies. As such, like in Bosnia and Herzegovina and North Macedonia, receivables management companies can effectively be set up without having to meet any statutory minimum capital stock requirements (except those that apply to all firms), obtain central bank approvals, or comply with any other conditions.

This under-regulation also means that these countries’ central banks are not empowered to approve or supervise receivables management companies. The National Bank of Serbia has on multiple occasions highlighted the lack of its authority to address complaints against these firms.

7. Global arrangements

Companies that specialise in accounts receivable management are regulated in a variety of ways. In the US, the Fair Debt Collection Practices Act (FDCPA) governs the collection process. This piece of legislation sets out the times at which debt collectors cannot contact debtors, addresses attempts to collect time-barred receivables, and allows debtors to lodge complaints against collection agencies. The FDCPA also empowers the specialised Consumer Financial Protection Bureau (CFPB) to oversee compliance with the law in this regard. In the EU, where no sector-specific legislation is in effect, these issues are indirectly governed by the 2005 Unfair Commercial Practices Directive (UCPD).

8. Conclusion

Both Serbian and regional receivables collection companies are under-regulated. Although the number of these firms has been growing, regional legislators are yet to come up with rules that more appropriately direct these companies’ operations. Montenegro and Albania are the sole exceptions in this regard, but no country in the region has enacted receivables management regulations similar to those of the US. Lastly, closer regulation is likely to be introduced gradually, both as receivables management companies broaden their activities and as regional legislation is aligned with EU standards. Any future regulations in this field must obviously steer clear of excessive intrusion, and appropriate rules for receivables management firms ought to be balanced against consumer protections from unfair commercial practices to ensure this relatively new industry is not stifled by excessively rigid controls.