The lure of doing business on a global scale has led many companies to grant credit more readily to foreign clients than domestic ones. This can result in some serious international collections problems. The best way to avoid them is by taking proper precautions before you extend credit to a foreign customer.
It’s imperative to run a thorough credit and background check on any international customer before giving credit. This involves more than meets the eye. You can’t rely solely on credit applications filled out by international prospects — most of them know how to show themselves in a favorable light. And relying on the opinion of sales agents — yours or theirs — who stand to benefit by landing international accounts isn’t advisable. Make sure to get an up-to-date credit report on your prospect. A report from six months ago is still old enough to mask significant problems a company may be having, particularly in this precarious economic climate.
An overseas client’s good reputation is also not enough to warrant extending credit. If others in your industry give a good reference, don’t be lulled into a false sense of security. Insist on up-to-the minute credit checks. It’s also wise to get a personal guarantee upfront. And make sure it’s constructed to conform to the laws of the country where it will be enforced. Otherwise, it’s useless. It may have to be written in your client’s native language, so you should have access to a competent translator.
Ask overseas prospects to give your credit manager sufficient time to research their backgrounds. Don’t cut corners and extend credit just because a client wants to do business right away.
Once you decide to extend credit to an international customer, do so prudently. Research indicates that many U.S. businesses grant more credit to international clients than they would to comparable domestic ones, simply because they want to tap the overseas market. This can be a very costly mistake.
Make sure your payment terms — and schedule — are spelled out down to the letter. This can pose challenges when you’re dealing with clients in different time zones who speak different languages. Once again, access to a good translator is very helpful.
Keep all your original invoices, orders, bills, etc., and send your customer photocopies of them. Some countries insist that you present the original documentation in order for you to win a dispute.
Be alert to signs of potential trouble with your international client. Many U.S. businesses will wait longer before taking action on overdue international accounts than domestic ones, simply because a substantial amount of money and effort went into getting that business in the first place. The sobering reality is that the longer you wait to collect, the less likely you are to get what you worked so hard for.
If an international customer fails to pay within a reasonable amount of time, try to arrange a realistic payment plan and make sure everything is put in writing. If that fails, send a “final demand” letter asking for payment in full by a certain date — ideally no more than 10 days from the time it’s received.
If you still get no response, send a letter indicating that unless the situation is swiftly remedied, you’ll be turning the account over to an international collections agency.