to Product Your Company
When You're Selling Overseas
receivables is a subject that can cause some credit managers to
crow--but it can make others cringe. Some of them are just plain
lucky in their international collecting, while most others invest
a lot of sweat, tears and hard work protecting their companies in
their international business ventures. Companies can make big money
abroad, but without the proper procedures may not be able to collect
Capital suggest these steps to take to protect your company before
and after an international sale, trade, or investment:
Develop a thorough credit portfolio.
Minimize credit vulnerability.
and care: Don't let haste make waste.
establishing credit terms for a specific international market, one
must consider the customer's credit-worthiness, the stability of
that foreign market and the accepted customary business practices
for transactions there. There is no need to change or tighten your
credit terms just because you are dealing with a foreign market,
but detailed analyses of credit-worthiness can mean the difference
between success and failure.
first step in establishing a thorough credit portfolio is the "safeguard
double security" system. It hinges on investigative techniques:
conducting investigations of the country and of the company you
want to sell to.
multi-million dollar corporations employ complete international
"investigation" departments, so that an individual credit manager
may not have to single-handedly get the information. However, regardless
of the size of the corporation, as well as which department is responsible
for the research, these questions are often overlooked.
exporter, you should be aware of what is occurring in the world
marketplace. Ideally, you should be aware of which countries are
experiencing financial difficulties, whether you trade with them
or not, as their conditions could easily affect a country that is
in your company's interest.
may want to develop a "check-list" format, containing questions
such as these to help make a proper and complete credit evaluation:
the country meeting present financial commitments?
it continuously borrowing, while rarely repaying?
the political situation stable?
the country's credit standing with international banking sources
deemed relatively credit-worthy, or high risk?
are the country's regulations regarding currency exchange?
are the relevant import/export procedures, regulations and license
or incomplete documentation is one of the most frequent causes of
problems with an international transaction. You need to be careful
and thorough, scrutinizing every aspect in the preparation of all
example, you might already have an excellent relationship with a
foreign company in a country where the government has control of
all hard currencies to be paid out of the country. You have investigated
thoroughly and determined that the risk was worthwhile. You ship
the goods, they are received and the company is ready to pay.
the goods are denied approval for payment by the government because
a certain document wasn't completed, or was completed incorrectly.
Payment is delayed while you try to rectify the problem. Every day
of delay hurts cash flow.
you have learned some major facts about your host country, you should
investigate your prospective customer's financial health. Here is
status. Corporation? Partnership? Sole Proprietorship?
of incorporation or registration? Date of incorporation.
(names and titles).
Headquarters and branch office addresses, nature and scope of
& Bradstreet or other foreign credit reporting service. Date,
rating, payments, number of employees, condition, trends, comments.
financial statement date(if applicable/available).
of sale. Government, export, days sales outstanding.
Names, credit-line description, how secured, interest rate.
references. Banks(name, address, contact, account numbers), trade(US
companies that have traded with the organization in their own
country; companies in different countries that have traded with
questions that should be considered include:
the company meet your domestic credit requirements for an "open
account"(i.e., a minimum initial standard)?
they have the ability and availability to pay you in U.S. funds?
their credit references confirm that this organization has a demonstrated
ability to perform in accordance with your credit terms? (It's
important to focus on their ability to pay rather than how you
can adapt your credit terms).
sources can help with this research, including your international
banker, the International Chamber of Commerce, the International
Trade Administration, the Overseas Private Investment Corp., foreign
credit reporting services and Eximbank. The regional offices of
the U.S. Department of Commerce are also ready to help.
you have decided to ship an order, what can be done to maximize
your potential payment?
use of open account terms in international transactions should be
limited to those customers who have been properly investigated or
those you've done business with previously. Open account terms are
usually reserved for domestic customers of those located in stable
are drawbacks associated with open accounts. If the country has
a dollar exchange shortage, buyers on open account are sometimes
unable to get US dollars readily. This problem can be magnified
in countries where applications for exchange to settle dollar drafts
take precedence over applications for exchange to settle open-account
transactions. And, to make matters worse, if a customer does not
pay, the open account sale doesn't offer any tangible evidence of
obligation that is needed for litigation.
IN ADVANCE TERMS
leaves the seller with little or no risk, but is hard on the buyer.
Western Capital recommends that this procedure be used for
three kinds of customers: those that purchase infrequently and that
appear to have little opportunity to become repeat customers; customers
in countries rife with political instability, and those in countries
where there is a great deal of economic risk (near default, money
system collapse, etc.).
quoting the customer, specific directions for how the money is to
be transferred ought to be included. For example, should all money
be payable in US funds? Will the money be transferred via telex
or wire transfer?
wire transfers are better than checks, but because of a lack of
uniform international procedures, they can be confusing. That is
why banks often recommend an international wire system. Two are
available: The Society for Worldwide Interbank Financial Telecommunications
(SWIFT) and the New York Clearing House Interbank Payment System
of credit is a declaration by a bank that it will make certain payments
on behalf of a specified party under specified conditions. The L/C
authorizes the exporter to draw drafts on a bank and to receive
the funds by presenting the prescribed supporting documents.
all the method of collection, however, the letter of credit is one
of the safest available, other than cash in advance or a documentary
sight draft (documents against payments).