Collecting Foreign Receivables

Expanding your business into foreign markets is exciting, gut wrenching, heartbreaking, and exhilarating.  Sometimes all at the same time.

When selling into foreign markets, most Canadian businesses do not ship goods until the purchaser has provided a Letter of Credit. Another option to ensure payment is trade credit insurance. Trade credit insurance pays you for your receivable in the event your foreign customer fails to remit. Some trade credit insurers include:

             AON
 Atradias
EDC
Euler Hermes
 Coface
AIG

At Priority Credit, we work with clients who have foreign receivables not covered by insurance. And we work for the insurance companies themselves.

Recently a client from Montreal retained our services to collect a receivable from a customer based in Portugal. After several attempts through our Portuguese- speaking collectors, it became obvious that the Portuguese debtor was not willing to negotiate in good faith.

Through our active involvement with the International Association of Commercial Collectors (IACC), our firm was able to transfer our client’s receivable to a trusted IACC business partner in Portugal. Our Portuguese agent was able to “bring the fight” to the foreign customers doorstep and successfully negotiated a repayment schedule which recently resulted in the account being paid. 

Our agent wire transferred EURO to our trust account and Priority Credit converted the payment to Canadian dollars and remitted to our client.

If your firm has slow-paying international accounts receivables and you are not sure what to do, we recommend retaining an IACC member agency. IACC member agencies are carefully vetted for their strict compliance to local laws and bonding requirements. In addition to IACC membership, we further recommend retaining an agency that employs IACC Certified Collectors. 

Agency employees that maintain their professional designation are very serious about their careers- and your money. 

Cash Flow is King

The number one mandate of any business is to survive. This mandate supersedes any other.  An organization must generate enough cash flow to meet its obligation such as payroll, taxes, and payment to trade suppliers and avoid being insolvent.

During negotiations with many debtor companies, the #1 response we typically hear is “We had tons of orders- I don’t understand why I’m in trouble”.  These “successful” business people become insolvent because they simply didn't have enough cash to meet operating expenses, including the added cash requirement that increased sales generates. Without adequate cash planning these debtor companies were not capable of meeting payroll and the purchase of raw materials to meet the sales demand.

With any business the cash cycle looks like this:

Cash is used to buy raw materials or pay for services rendered in the production of the final product or service. The sale of the goods or services produces cash and accounts receivables. When customers pay their bills, the accounts receivable goes down and the bank balance increases. Unfortunately the cash doesn't usually come in the same month as the sales generates.

If a business finds itself short of cash, the options are:

•       The owner can inject more cash into the business.
•       The business can use a pre-existing bank line of credit.
•       The business can slow its payments to trade suppliers.
•       Sale of fixed assets.
•             Sale of non-current inventory.
•             Issuance of company stock.

One of the easiest methods of raising some fast cash flow is to ensure you are collecting money from your credit customers in a timely matter. Your collection efforts should include a systematic and consistent follow-up. This is vital to the establishment in the credibility of your credit terms in the minds of your customers. Time is of the essence when credit and collections are concerned. To be effective one must follow-up diligently. An accurate, timely report of your aged trial balances is crucial to the efficient control of collections and release of new orders.

Putting a customer’s order on credit hold is an excellent way to get their attention. Prompt contact with your customer in a professional, tactful manner usually produces the desired effect. Make sure you respond quickly when your customer pays his account to make sure there are no delays with their next order.

Trust – But Verify

The Value of Validating Your Customer & Supply Chain 

     The phrase “Trust-But Verify” comes from an old Russian proverb. Ironically in the 1980’s it was a favorite mantra of Ronald Reagan.  Wikipedia defines it as: a form of advice given which recommends that, while a source of information might be considered reliable, one should perform additional research to verify that such information is accurate, or trustworthy.

     Back when I was a kid and just got into the receivable management business, I had a boss that used this phrase all the time – and it drove me nuts! Today we have staff in two countries and thousands of clients and can now tell you unequivocally that he was right. Trust your customer but don’t be naïve. Trust the information on the new credit application but complete your due diligence check list anyways.

It’s All About Risk Management

     Trusting your customer and vendors is important in business. Validating that your customer and vendors are capable of fulfilling their obligations is of equal importance – maybe even more so.

 So How Do I Trust But Verify?

     There are many ways to satisfy yourself that your client and vendors are capable of doing good consistent business with you. If possible, we recommend visiting your customer or vendors place of business where practical. Have a look around.  Is the yard busy? Does the stock on the shelves look current? What’s happening at their loading dock? Do the employees look busy? Are the phones ringing?

All these indications are good signs of the level of activity that your client or vendor is operating as a going concern.

What If You Can’t Visit?

     If the physical location of your client or vendor makes it impractical to do a premise visit, we recommend retaining the services of a credit investigation firm that maintains the ability to obtain information not readily available. They should have access to corporate records, land titles or deed information. They should have access to construction project data. Additionally they ought to maintain the capability of performing reference checks on trade suppliers and obtaining a bank check. It should be simple to use an investigation firm. Look for a vendor that provides online access and is equally easy to call on the phone.

Surprises are for Birthday Parties – Not Your Business

     In negotiations, information is power. Access to reliable current data on your customer and supply chain will help you to plan and source alternate suppliers if appropriate. Don’t get caught with no place to sit when the music stops.

About the author:  Brad Lohner is a Director of the PCR Group of Companies which owns Priority Credit Recovery, a Canadian commercial collection agency and AccountAdjustment Bureau, Inc., an American commercial agency. The PCR Group also consists of Lien-Pro – Canada’s only Construction and Builders lien filing firm, and Credit Process Advisors – a strategic credit management and accounts receivable outsourcing firm. Priority Credit Recovery and Account Adjustment Bureau are authorized agents of Lumbermen’s Credit Group, a construction and mercantile credit bureau with access to data throughout North America.