Five Tips for Granting International Commercial Credit
Monday, June 3, 2013
|Five Tips: When to Grant International Credit
Five Tips for Credit Managers
Navigating International Credit
While many of us are detail-oriented, it’s safe to say that no one reading his has the ability put together the details like the infamous Sherlock Holmes. Still, Sir Arthur Conan Doyle makes an excellent point: focusing on the smallest minutiae, one can make any mystery transparent. This is especially true in the world of Credit Managers. Approached daily to extend credit often up millions of dollars to unknown companies worldwide, knowing the right details up front can save their company time and money.
In my twenty years in Credit and Collections, I’ve run across some “clues” that can help in setting up your international accounts. Here’s a five easy tips to avoid collections:
1. Notice Business Cards & Letterheads.
The very name of a company does not seem like it would pose much of a problem, but considering the complications that ensue with language barriers, and multiple names for the same entity, it sometimes becomes one. Especially when it comes to international accounts, knowing the company’s name in its native language can make a dramatic difference in correctly determining exactly who you are dealing with.
For instance, often a Chinese company will have a generic English name, such as “Good Harmony Enterprises” for trading purposes abroad, but have an entirely different name in terms of how it is legally registered in its own country. To complicate matters, the correct legal name is usually in Mandarin or Cantonese characters, something most American Credit Managers just can’t “jot down.” This also occurs in the Russian Cyrillic spelling of some companies.* Even with our neighbor, Canada, a trade name rarely resembles their registered one, and often begin with a series of numbers, such as “657543 Ontario Inc.,” trading as “Enterprise Semiconductors.”
*Also, side note, many Russian firms’ legal names begin with the letters OOO (Limited Liability Company).
An easy solution to this problem is to keep copies of the company’s business card or letterhead. 9 times out of 10 it will have the company’s name perfectly captured, speeding up the credit investigation. Also, adding a line for a subject’s Legal Name and then a separate one for their DBA on the credit application can help you get the complete information to begin with.
2. Release Your Name in Mexico.
I would actually apply this advice to all of Latin America—but especially in Mexico. Sadly crime in these areas has become a real issue for many businesses. Consequently, many family-owned companies are very suspicious and (understandably so!) not to give out balance sheets with their net worth on it to a third party credit agency. How do they know if that information will be used to kidnap a family member or rob their business? What if the information is put on a public forum and then criminals use that information to target them? In this region, we have a much higher rate of obtaining balance sheets by suggesting the client email their contact at the company, and letting them know upfront that the “specific name of the credit agency” will be calling them by the due date of the report. Then, let the credit agency know that they are to release your name during the investigation. By doing this, the reporting agent can then assure the Latin American company that they are simply verifying financial data for this particular deal with your company. Also—as in Kreller’s case—we’ll be sure to tell them that the report is exclusively for our clients eyes and will not be sold to the public. Often this is the confirmation a private company in Latin America needs to hear before they feel comfortable to release the numbers you are seeking to make your decision.
3. References Should Match Exposure.
I would recommend asking an international company to supply you with 5 references—including some that are within the United States, with the same range you are being asked to extend. In our investigations we call the trade references on the credit applications and find out that even though our client wants a recommendation for $100,000, the highest credit extended on any of them is $5,000! Why should our client be the lucky one to be first in line to grant them a credit line of that size? Also, the inability to provide a U.S. reference might also confirm that you are first on the chopping block. It is O.K. to refuse to grant a company credit for a certain amount if they cannot provide you with a reference in the same exposure range that they are asking from you.
4. Obtain Tax IDs.
One easy item to add to your credit application is to ask for the Tax ID number of the subject company. Often we find 4-5 companies with similar names all at the same address and phone number—yet all of them are registered legally separate from the other (not liable for the other’s debts). Not only can this help make sure you get a credit report on the correct company, but it can also correctly assign liability if the bills are not paid. I have seen where companies use their grouping of “companies” (basically just registering several name variations) as a corporate veil l to hide behind, and “closing” the name that has the most debts under it!
5. Cover Yourself: Have a Signature Under Terms.
Lastly, ask for a signature at the bottom of your credit application with the terms that protect you internationally. Your inside legal counsel is a great reference to turn to when creating this. Some wording could state that if the debtor defaults in payment that collection and legal costs in that country are their responsibility. You could ask them to agree to cooperate with any credit information sought by your company or credit agency on your company’s behalf to grant them a credit line. If you are dealing with a sole proprietorship, a personal guarantee form may be added if the debt amount is large and the owner IS the company. Next to the written signature, ask for a typed name and title and date so you can actually read who signed it. The signer is also a good name to give the credit agency to ask for in their in country interview as the person requesting credit has more of a desire to cooperate than the receptionist who answers their phone! Suppose if the salesman presses you for open terms on a large sum and the controller signs the credit application with the above terms on it – but then still refuses to give out the balance sheets. You’re now fully justified to go secured as they have not met the terms you have set forth upfront in writing.
As the famous novelist Gustave Flaubert once said; "Le bon Dieu est dans le détail" (the good God is in the detail) or as we Americans like to say “The devil is in the details.” By pinning down the right details early, most things are made clear.
Have any questions? Want information?
Jennifer Hudgens, VP in Kreller’s Credit and International Collections Division, joined the company 20 years ago – soon after obtaining her B.A. in Psychology at the University of Cincinnati. She quickly found the international marketplace a fascinating and relevant vehicle for studying human behavior and world cultures – giving her unique and insightful leverage in her field. She now guides clients in obtaining current and dependable international credit information, along with consulting customers in pursuing foreign debt. You can contact her at firstname.lastname@example.org.