International Credit Policy

Credit managers can apply the same basic rules to foreign customers that they apply to domestic customers in evaluating creditworthiness. However, for foreign customers they also must evaluate the stability of the customer's local government, gain an understanding of changes in the customer's country, and review events that might affect sales to a particular market.

Barriers to export can include differences in language, title laws, credit terms, monetary exchange problems, and even the voltage for electrical equipment. Credit managers must learn the customs and practices that will affect credit for their foreign customers, understand the local meaning as well as the textbook translations of business terms, and become familiar with methods of financing overseas transactions.

Credit professionals should seek help from both public and private sources of credit information about a foreign customer requesting open account terms. When information is spotty or suggests a problem, the credit manager should continue to investigate the foreign applicant until they see a convergence of facts. At that point, an informed decision can be made.

Credit managers also must meet with their company's top management to consider profit margins, sales terms, and the amount of risk considered acceptable to the exporting company. They must consider the company's sales and market share goals, how the company is plans to do business, whether they will export directly or through a distributor, who will handle licensing, how business will be solicited, whether instructions and warranties will be the buyer's language, and learn as much as possible about the seller's export regulations. All of these factors will affect the company's international credit policy.

Unexpected problems can occur. Regulations vary from country to country, and the time frames for legal action can vary from months to years. Credit managers should know their rights, be prepared to act immediately, and demand payment when it is due.

Credit managers have to take some risks, but they must be calculated risks. They can minimize risk in the following ways:

• Request a signed credit application.
  
• Obtain and evaluate credit information
  
• Request the most recent financial statements.
  
• Request trade references from at least three U.S. trade references - preferably vendors selling in large dollar amounts to the foreign vendors.
  
• Request bank references, checking accounts, and loan information.
  
• Get ratings on all the references and keep them updated.
  
• Run a credit report.
  
• Establish the terms of sale.
  
• Establish the credit limits.
  
• Specify in what currency payment will be made.
  
• If payment is not in U.S. dollars, include written agreements on the exchange rate.
  
• Get the customer's agreement to credit terms in writing.
  
• Make sure the credit terms are also printed on the invoice.
  
• Stay current in world affairs.
  
• Monitor media coverage of the customer's country.
  
• Study the demand for the product shipped.
  
• Be aware of how title passes.
  

Edited by Michael Dennis, author of "Credit and Collection Handbook" available at the NACM Bookstore.