In Focus Commercial Credit
Challenges facing cross-border credit collection
Successful international credit management relies on having the right skills and understanding of local law and culture
Gareth Fawke Director, Inksmoor Finance Group
gfawke@inksmoor.co.uk
International trade with foreign customers poses many challenges to businesses who are looking cross border, at new markets, to acquire customers. None more prevalent, but mostly ignored when setting up trade agreements and processes, than the credit- management process.
The contract The deal is signed, but how do you ensure you get paid? Sales documentation is an integral part of any sale, whether international or domestic. Initial contracts should detail your credit terms and process so the client is clear when and where to pay. The process element lays out what will be
supplied by you and what is required of them; in its rawest form, a contract backed up by a purchase order followed by a proof of delivery or signoff and, finally, an invoice. The true value of this documentation –
although extremely important to each stage – should never be seen!
Due diligence Do you know the customer? Some due diligence on the buyer or customer should always be obtained, but even more so on cross-border transactions. Some brief questions to ask are as follows: l Is the company creditworthy? lWho is the main-order contact? lWho is the purchase-ledger contact, and who will authorise the payments? lWhat will the debtor require to pay you in the host country?
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are made in another, thus enforcing the need to understand and prepare for any language barrier. In such cases multilingual credit controllers
Just because the order was placed in your native language, does not mean they can, or want to, understand you when you are passed over to purchase ledger
are a must when operating a cross-border collection strategy.
Cultural differences In order to ensure some level of ease of doing business, identifying cultural differences can save you from: l Offending the customer. lWasting time. lMisunderstanding when you will get paid. The best examples for this are that, in
l Are there any additional cultural or regulatory barriers that you will need to adhere to? lWhat could delay payments, again are there any cultural or regulatory issues? l Can you speak the language? Could language be a big barrier to collection?
The language barrier The most common form of payment default and collection issues for cross-border credit control and credit collection, is a lack of communication and language skills. Just because the order was placed in your
native language, does not mean they can, or want to, understand you when you are passed over to purchase ledger. With larger blue-chip businesses, orders will be made in one country, but payments
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certain countries, no payments are made due to more senior staff taking one to two months off, or total, or partial, shutdown. For example, Spain and Italy where this is most common. Understanding a country or company’s
religious views will help you understand specific cultural holidays. Countries like Switzerland are generally offended if they are chased for money, even if overdue! Do your homework and read as much
into a country’s payment trends as possible, and understand a country and market segment’s average payment days as best you can. A good example of extremities are
Germany who are generally good payers with an average DSO of 45 days and the UAE with an average DSO of 100 days. These figures were supplied by a World Bank survey.
November 2017
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