Doing business across borders with the right insights
Emma Caister is the specialist in the field of international business within Graydon. As International Business Director, she focuses on the strategy concerning the International Business and obtaining the most reliable international data. She has a good understanding of the problems that exist in the market. We spoke to her about the risks and possible measures of doing business with foreign partners.
Every company is different
Every company is different and faces different challenges. A company that sells a lot of low value products has to deal with different types of risks compared to a company that sells few high value products.
Different companies have different cost structures and therefore have different priorities. For example, a manufacturer always incurs material costs, while the cost per new product sold for service providers can be negligible. An invoice paid too late can therefore have a different impact on one company compared to another. In addition, differences of the market in which a company operates also causes differences in information needs and risks.
Distance creates uncertainty
When a company is first accustomed to only supplying domestic companies and suddenly takes the step to a collaboration with a foreign partner, the company has to deal with new challenges. Distance can create uncertainty.
When you are going to operate in a market you’re unfamiliar with, it is important that you have access to the right information sources. Do you have enough information about a potential new business partner if you have only had telephone contact? Stepping on a plane for every deal is rarely a good alternative. However, it is important to know whether you can trust your new business partner.
Find out who you're doing business with
There are a number of actions you can take to get a better idea of the party you're doing business with. By gaining more insight into this, you can, for example, limit the risks of late or unpaid invoices and image (reputational) damage caused by dealing with a criminal organisation.
- Find out the UBO of the organisation: Who is the ultimate stakeholder behind the organisation with which you want to do business? You want to prevent a puppet behind the organisation.
- What is the corporate structure of the organisation? You can consult a credit report for this.
- Check who signs the contract: Is this person authorised to sign the contract? This is important to enter into a legally binding agreement. For each contract, you must ensure that you are talking to the right person within the organisation.
- Is the company able to pay within the agreed term? You want to minimise the risk that you will ultimately not get paid for the services or products you have provided.
Foreign law
Different rules apply to the ownership of goods per region. Such a clause in a contract (Retention of Title) specifies the obligations that a buyer must make towards the seller in order to become the owner of the purchased goods. It is wise to pay extra attention to this for long-distance transports across the border. Until what moment are the products you supply still your property as a supplier, and when do they belong to the customer? A customer often does not want to pay until he/she has received the products. Therefore, in some cases it can be useful to request a deposit, with which you can at least cover the material costs in case of emergency.
Limit risk of loss
You can protect yourself from the risk of bad debt in several ways. For example, many companies have credit insurance. This protects them against losses when trading within the agreed area and the limit on outstanding credit for which the company is insured.
Another way to mitigate risks of losses is to assign certain conditions to certain companies. For example, look at the recommended credit limit and compare it with a customer's order value: can you expect the customer to be able to pay based on this? You can, if necessary, adjust the payment terms depending on the answer. When you can expect, based on available information, that a customer will be able to pay the order within the standard time frame, it is probably okay. However, when the credit limit is not sufficient, it is wise to consider prepayment or other alternative payment conditions.
It is important to look at the credit limit and payment behaviour, if available, of a company in the onboarding phase, but it is also wise to continue to monitor your customers. For example, you can immediately find out whether it is necessary to take further action in the event of changes in, for example, the company structure, ordering behaviour or the credit limit.
Use the right information
It is important to base your actions on reliable sources of information. The international reports from Graydon provide you with as much information as possible about a company including a recommended credit limit and its corporate structure, for example. To find out who the ultimate stakeholder is behind a company, you can perform a UBO check. In some situations, this can even be mandatory.
The Graydon International Business has a wide variety of customers across all industries including Manufacturers, Distributors, Insurers, Banks …………… all benefiting from the insights provided on the overseas businesses they are trading with.
This kind of information is not only used by companies to do business internationally, but also by credit insurers. A credit insurer must be able to identify how much outstanding credit from different customers they have at one party. That is because they have to watch out that because of the sum of different customers, there is a too high amount of money outstanding from one single company. To find out to what extent that company is able to repay the outstanding credit, they also need reliable information.
