The most important thing to note is that extending credit internationally is inherently riskier than extending it domestically. There are a host of factors from political risk to the increased challenge of gathering information that makes extending credit internationally risky. The good news is that if done right, it can provide a whole new market for your product or service. Here are some things to consider before attempting to branch out internationally.
This will normally only be a concern if you are dealing with companies in less developed markets or in unstable political situations, but given recent political and trade developments this may become more of a concern in more developed markets. With that being said, the main things you are looking for here is what are the regulations and oversight like in the country. How stable the political and economic systems are and what the kind of relationship the country has with the United States In an ideal world, you would only be doing business with countries with robust markets, solid political climates, and friendly relations with the US, but this is not always the case. Just as a lower credit score does not immediately mean you will not extend credit, so do these factors not mean you should not extend credit. They are just risk factors to take into account.
Difficulty Finding Information
Finding information on companies located outside the US is going to be substantially harder and take more time. This does not mean you should shortcut the process, but instead, you should plan to give yourself more time to gather the necessary information.
Different Laws and Customs
If an account does become delinquent, the amount of time and resources needed to collect on that debt go up exponentially if the customer is abroad. This should be a big factor to consider, especially when extending credit to a new customer or a company you do not know much about.
Changes to your Credit Application
One of the most overlooked aspects of extending credit internationally is any changes you need to make to your credit application. Some of the suggestions we have are below:
- Increase the size of your phone and fax number blank to account for country codes
- Include a space for the company’s VAT (Value added Tax) number if the company is located in the E.U.
- Company Registration Number (This is very important in France, but can extend to most E.U. countries)
- Adding a blank for the Country
- A blank for the IBAN number (bank account number) and BIC code (bank code)
This list is not exhaustive and you may need to add or remove things depending on the country you hope to do business in but is a start.
Extending credit internationally does carry with it increased risk, but it can also be a huge boom for your company. Like every decision, it is important to consider both the benefit and the risk in order to determine the best route for your company. If you are seriously considering extending credit overseas, we recommend you contact a lawyer with knowledge in the field in order to make sure you understand all the risk associated with it.
Here are some other great articles that should give you some more information on the risk of extending credit internationally