Most business owners are aware that foreign collections are bound to cause more problems than domestic ones. What only a few know is that the root of the problem may be the foreign bank you have to deal with.
You can reduce potential problems with foreign banks by following the research process of Ron Greitzer, president of $7-million Los Angeles Fiber Co., in Vernon, Calif. Greitzer, who cofounded the company in 1983, has educated himself over the years in vetting foreign banks. His 120-employee company, which makes the tiny fibers found in pillows and cushions, expects 40% of this year's sales to come from abroad.
As a rule, Greitzer contacts his own bank in Los Angeles to ask about its transaction history with the foreign banks in question. Do they have an international track record? Is it a good track record? It's a simple but effective technique that's worked well for Greitzer, particularly in Spain. When he started selling there, three years ago, he found that some banks--after withdrawing money from his customers' accounts--took between two and four weeks to deposit those funds in his Los Angeles account (something the banks do for "float").
Another source Greitzer relies on is his freight forwarder, the company that serves as the middleman between the shipping boat and the bank. "They'll know which banks are good, because they've been working with overseas banks for a while," he says.
The forwarder sends proof-of-delivery documents to the banks, who are supposed to pay the supplier--Greitzer, in this case--upon receipt of the documents. In that role, the forwarder is usually the first to hear from suppliers about payment delays.
After learning which banks are cooperative, Greitzer naturally faces a second issue: what if his foreign customers don't patronize the cooperative banks? Greitzer says many of L.A. Fiber's customers have switched banks at his behest. Those who haven't, he's dropped. "Some customers just won't switch," he says. "But you just have to figure, what good is shipping if you're not gonna get paid?"