Collecting Payment from International Customers

Collecting accounts receivable is a vital and often difficult task. If your business is international, and your customers operate in foreign countries around the globe, collections can be a nightmare.

Distance, time zones, and various legal and cultural differences can hamstring your efforts to collect international debts. No business will have perfect collections over the long term, but there are seven smart tactics that can help you manage the financial risk of international accounts receivable:

• Know before you go: As in sports, the best defense is often a great offense. Take the offensive by knowing who your customers are. Many domestic companies do thorough credit checks on American customers but then accept purchase orders from completely unknown entities abroad. To head off the risk of nonpayment, subject your international customers to even more scrutiny than domestic accounts. Start with a credit report from Coface or other reputable provider. A small investment upfront (less than $200) can prevent you from invoicing a known fraudster, gangster, or deadbeat. International credit checks often reveal much more than you would expect, including names of directors and investors, revenue and capitalization values, and financial links to related companies.
• Get it on paper: Not all industries or countries operate on paper contracts. Don’t let that discourage you from getting the basic terms on paper. A solid contract, reviewed by a competent domestic attorney, should help you now and later. In the short term, a contract should precisely define expectations such as price and payment terms; in the long term, if you are facing nonpayment, a contract gives you something to present to a U.S. court.
• Build multiple relationships: Even the best contracts aren’t worth the paper they are written on if they are between total strangers. Only good personal relationships can ensure smooth transactions between companies that do not share a homeland. The best relationships are top-to-top, but don’t forget accountant-to-accountant and salesman-to-buyer. When it comes time to expedite payments or resolve disputes, having a well-connected staff can make a big difference. And if you wait until there is a problem before your people speak to their people, it’s probably already too late.
• Use the phone: If payments from an international customer start to slip, get on the phone. Don’t hide behind e-mail; leverage the personal relationships you’ve built to get right to the heart of the matter. The adage “Seek first to understand and then to be understood” is especially important in this situation. Call your contacts at the foreign company, and be prepared to listen patiently.
• Pull the plug when necessary: International customers may be more likely than most to take advantage of your good nature (or your sloppy accounting practices). If you have an account that is headed into arrears, don’t be afraid to pull the plug on further orders. Stop providing service, hold further shipments, or move to a prepayment requirement. Keep the communication channels open, but don’t let a bad situation get worse by feeding it. Often just the threat of a work stoppage is enough to get their payments department moving, but be prepared to follow through with your threats or demands.
• Release the hounds: A number of companies can help you collect your international receivables. These services range from simple calling services to private detectives to international lawyers. Some operate for fees, others on commissions. Coface, the same company that provides credit reports, has an international collections department that operates on contingency.
• Sue: A lawsuit should be your last resort to collect a debt, but you’ll know it is necessary when the customer simply tells you that they are never going to pay you. International customers often believe that their laws, and the thousands of miles between you, will protect them from recourse. They are likely very wrong in this regard, and their admission gives you the green light to file a lawsuit. Filing is neither difficult nor expensive (a few thousand dollars will get you a long way with a contingency-based law firm), but it does require strategy. You may have to choose whether to file in your state, another state, federal court, or the courts of the customer’s country. Good legal counsel is vital, as is a heaping dose of patience. Lawsuits take time.

Don’t ignore the financial risk that comes from selling internationally. Only careful planning and a willingness to act will help you collect international accounts receivable.

David Worrell writes the Money Matters blog at AllBusiness.com.