Congratulations! Your company's plan for global diversification is a wild success, with orders rolling in from around the world. Now you've got to figure out how to get paid without losing sales. Here are some tips for keeping foreign sales profitable.
- Take a conservative stance. Walk away from any sale that would scare you off at home. Before signing on the bottom line, learn as much as you can about the country's creditor protection laws (if any) and your customer's credit history, as well as payment norms. "Take a country like Malaysia," says Stephen Chipman, director of international services for accounting firm Grant Thornton's southwestern U.S. division, based in Dallas. "If you say COD, Malaysian companies interpret that as meaning payment is due in 30 days. Then you're lucky if they get around to paying you within 90 days." To quantify the risks, check with your regional branch of the Export-Import Bank, as well as the U.S. Chamber of Commerce.
- Insist on payment in U.S. dollars to protect against currency risks as well as credit risks -- even when customers are in countries that seem safe. If your potential customer won't agree, either take out a letter of credit or move on to the next prospect. Don't delude yourself into thinking you're at risk only in a volatile Eastern European or Third World country.
- Insure your foreign receivables if you want to offer flexible terms to avoid losing business but feel the deal is risky. The Export-Import Bank (202-565-3900) offers a variety of insurance packages, including some aimed at small businesses and short-term buyers of single policies.