(d) There are also a number of general credit control policies that can be particularly important
when dealing with overseas customers.
Prior to the sale, the customer's credit rating should be checked, and the terms of the contract
specified. One key term may be demanding the use of an irrevocable letter of credit as a term of
release of goods. The terms of the remittance and the bank to be used should be specified.
The paperwork relating to the sales should be carefully completed and checked, in particular the
shipping and delivery documentation.
Goods should only be released if payment has been made, or is sufficiently certain, either
because of the customer's previous record or because the customer has issued a promissory
note.
Receipts should be rapidly processed and late payments chased.
There are several measures available to exporters to overcome specific problems.
Reduced investment.
A company can reduce its investment in foreign accounts receivable by insisting on earlier
payment for goods. Another approach is for an exporter to arrange for a bank to give cash for a
foreign debt, sooner than the exporter would receive payment in the normal course of events.
Reducing the bad debt risk.
Methods of minimising bad debt risks are broadly similar to those for domestic trade. An exporting
company should vet the creditworthiness of each customer, and grant credit terms accordingly.
Export factoring.
The functions performed by an overseas factor or export factor are essentially the same as with
the factoring of domestic trade debts. The charges levied by an overseas factor may turn out to be
cheaper than using alternative methods such as letters of credit.
Documentary credits.
These provide a method of payment in international trade, which gives the exporter a secure riskfree
method of obtaining payment.
Countertrade
This is a means of financing trade in which goods are exchanged for other goods. Three parties
might be involved in a 'triangular' deal. Countertrade is thus a form of barter.
Export credit insurance.
This is insurance against the risk of non-payment by foreign customers for export debts. |
