Article
Written by Nick Driver
Posted on 15/08/2014

Credit management of overseas customers: key considerations

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Trading abroad presents firms with challenges not faced in their domestic market, and the need for careful credit management is rarely more important than in these circumstances.

When trading overseas, chasing late payments is a far more difficult task as there are many hurdles to overcome that aren’t encountered domestically. Below, we highlight key things to consider if you currently do business abroad or are planning to.

Longer transaction times

To offer credit to customers and remain operating efficiently, it’s vital to have enough cash in reserve to fund day-to-day activities while waiting for payment. This is especially true of firms who trade across borders, as transactions take longer to be processed. Exporting means the time between placing an order and receiving it is likely to be longer for an international customer, which can also mean lengthier terms if not agreed otherwise. Protect your cash flow by ensuring enough funds are there before entering into a contract.

Language and communication barriers

English may be the language of global business, but that doesn’t mean everyone you deal with while negotiating credit will speak it fluently. Smaller customers in emerging nations may not have a strong grasp of English, which can confuse or slow discussions if you don’t speak their language either. Consider translation services, and make sure both parties have a full understanding of terms before signing an agreement.

Differences in business culture

Whenever you expand internationally, you will encounter different business practices and working cultures which need to be managed carefully to ensure the relationship runs smoothly. When it comes to agreeing terms, think about whether to follow the customer’s practices or your own and how each could impact on payment behaviour.

The benefits of credit scoring

In a similar vein to the above, a different business culture could affect credit worthiness, as the customer’s approach to payment may conflict with your interests. In this instance, international credit scoring would be vital to understanding the customer’s payment history as part of a wider financial risk management process.

The protection of credit insurance

In many ways, credit risk increases when it’s provided to a non-domestic customer, but with credit insurance you can protect your accounts receivable should debt go bad, and recoup some losses. There will be a cost involved to sign up for an insurance scheme, but if international customers contribute a large amount to your revenue, it could be the safety net your firm needs to keep running.

When it comes to growing into new markets, the rewards are there for businesses willing to take the risk. With cautious credit management, you can navigate the financial pitfalls and enjoy a rewarding business relationship in many locations.

 

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