Going global is a dream of many businesses. Not only can it significantly increase the customer base of a company, but it can help increase brand recognition. But, here’s the problem: when companies make the decision to go global, they sometimes become too excited and overextend their credit terms, especially if it is a potentially larger account overseas. If your company is looking to go global, make sure your credit department understands the foreign practices and implements a thorough policy. You do not want to attempt international in-house collection campaigns.
Like any domestic customer, your credit department should develop a credit application that requires contact information, banking information and trade references. Specific to international countries, you should also ask for the customer’s Swift code or IBAN number. The Swift code is a bank identifier code approved by ISO that unique identifies the customer’s bank. The IBAN is an international standard for numbering bank accounts.
Make sure the credit application is signed by an authorized person to ensure the document is legally binding. In most countries, there is no concept of “strength of title”, where a CEO or President’s title holds power and is always considered an authorized signature. Always search online for the company register to see who is listed as the authorized person.
Finally, make changes to your domestic credit application to feature specific international terms and conditions, including, but not limited to, warranty, shipping and refund policy. This is particularly important should your products need to be exported with a U.S. Department of State export license, as it goes through a much more stringent process.
As you build your international credit standards, consider the following:
- Country risk
As you grow your global business, start small. You should carry out market research to determine the potential of the international market in each country. Work with companies located in countries that are stable and are equal risk to domestic companies.
- Cultural differences
English is the international language of business. Insist that all documents including purchase orders be drafted in English. This will allow your credit department to properly review all clauses prior to accepting an order.
- Collection policies within the country
As a company, you need to understand that if a business has financial problems there is a minimal chance to recover the funds. Your credit department will need to be highly cognizant of the foreign collection policies to execute any collections efforts.
- Competition within the country
If there is a significant market for your business overseas, extending credit to international customers can give you a share of the market.