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Slow
and Non-Payment Still a Concern for Overseas Traders
by
Robert Paisola
The
globalization of many businesses is accelerating, but collecting
foreign billings still can be slow, troublesome and risky, according
to an international collection expert.
"With
trade barriers lifted as a result of the formation of the European
Community (EC), many procedures and standards have become more uniform,
thereby reducing the costs and difficulties that hindered trading
with these countries individually in the past," said Clay Torres,
manager of international collections for Western Capital, a leading
U.S.-based commercial collections firm.
However,
doing business with EC countries or other foreign markets often
still carries a high risk of slow or non-payment, he warned. And
securing funds from customers or clients in developing or unstable
countries is particularly difficult.
"The
most important thing is to know the economic and political conditions
in the country," Torres said. "A company should be aware of factors
such as government stability, overall prosperity level, national
debt, currency strength and inflation rates.
Generally,
doing business with companies in prosperous, stable nations, such
as those in the EC, carries less risk than with firms located in
countries with more disorganized economics such as Argentina, Brazil
and Peru, according to Torres.
"Also,
economic activity and funds in many countries are controlled by
central banks," he noted. "If there is a hold on exchange imposed
by a central bank, a foreign creditor won't get paid." Torres added
that as a last resort, a business can try to collect payment with
an exchange in a secondary market, but the losses will be severe.
Besides
gauging the economic situation in each country, Torres urges that
each customer be scrutinized closely.
"Surprisingly,
this is the most common reason why many accounts end up in the third-party
collection cycle," he said. "We encounter case after case where
there's no record of bank or trade references being checked, no
credit checks or no checking through international departments of
banks. It's amazing that many exporters do less checking on an international
account than on a customer next door.
To
minimize the risk of late or nonpayment from foreign customers,
Torres offers the following tips to U.S. firms:
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Make
use of the US Department of Commerce (DOC), which provides several
helpful services. At its Washington office, the DOC has "country
desks" that can provide economic and business climate information
on all nations. If a US firm has a problem collecting a delinquency,
the DOC also can contact foreign government officials and agencies
to help resolve the matter.
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Run
thorough credit checks on foreign prospects. A number of major
credit agencies have international capabilities. The DOC offers
names of these private organizations that provide reports on
the payment habits of overseas firms.
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Obtain
a letter of credit. US businesses should insist that foreign
customers obtain a letter of credit through a sound, well established
international bank to cover the cost of the goods and services.
This assures that a customer not only has, but has reserved
and earmarked, funds for payment. Upon delivery of goods or
completions of services, payment should be guaranteed by the
bank. Open account terms should be extended only to established
customers in extremely stable countries.
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Also,
exporters should beware that letters of credit have expiration
dates. Paperwork to claim payments should be processed promptly.
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Bill
only in American dollars and insist that you are paid in American
currency.
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Be
aware of the cultural idiosyncrasies of a country. For example,
in Japan, businesses leaders want to establish a dialogue and
a comfort level before they will negotiate or sign contracts
with foreign companies.
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Consider
hiring residents of the countries as marketing representatives
and trade specialists. Natives are familiar with businesses
in their home countries and can provide "inside information"
on cultural and business practices.
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