Export Credit Management-Is It Different?
McIntosh, Paul F., Business Credit
When I first became involved in the export credit function many years ago, it was a relatively simple matter: Get a letter of credit. For the most part, the entire function revolved around getting a letter of credit and presenting it to the bank for payment after the goods were shipped. Sometimes, there would be immediate payment upon presentation of the documents; at other times, there would be dated drafts allowing for deferred payment. The currency was almost always the dollar, so there was little concern about currency risk. Communication to the customer was via telex or telephone, if we were able to get through. The only complicating factors were who would be the negotiating bank for the letter of credit and whether the dated drafts would be converted to banker's acceptances so we could facilitate immediate payment.
Since then, we have come a long way. No longer is it generally accepted that business will be done on a letter of credit. No longer do we deal exclusively in dollars. No longer do we communicate through telex and letters, and no longer are we afraid of the transaction because it crosses international boundaries. Today, much of our selling in the international market is merely an extension of our domestic procedures--only they take place across international borders. Routinely, export transactions are being done on open account terms, and communication with the customer is via fax, telephone and e-mail. But, there are differences.
Recognize Country Risk
The most difficult concept to understand in establishing international credit is to recognize that the first consideration is country or sovereign risk. All too often, we are confronted with the dilemma of a strong customer, many times a foreign subsidiary of a familiar name, which is in a country where we are uncomfortable extending the requested terms. There can be many reasons for this discomfort. There may be restricted foreign exchange, political unrest, an unstable banking system or excessively high inflation. We have found that the best way to overcome these obstacles internally is to educate, educate and reeducate everyone associated with international sales. Once we have taught the fundamentals, we find our decisions, although sometimes unpopular, are respected and supported.
Finding Credit Information
Having crossed the country or sovereign risk obstacle, we are now confronted with establishing customer credit. Although considerably easier today than it was years ago, customer credit investigations are not only time consuming but costly. Many of the credit reporting agencies are on-line, which allows for rapid access of credit information. Unfortunately, the information available is not always current or complete. This then requires an investigation which can take anywhere from a week to 30 days. Also, if you want to include bank information in your credit investigation, you will have to employ a domestic bank to contact the foreign bank for a reference. This is an expensive and timeconsuming process as well, and much of the information you will receive will be of little value, other than merely to establish that there is a banking relationship. Gathering trade reference information is a little easier. In many situations, the customer may be buying from domestic sources. This will allow for the normal credit reference check, either by telephone, fax or mail. Those customers not already established with domestic sources will take longer to investigate because reference information will come from foreign sources or suppliers. …