Credit Risk Mitigation

Posted by on Feb 1, 2012 in Articles | Comments Off on Credit Risk Mitigation

Get Control of the Skills You Need to Access Global Opportunities

Exploiting business opportunities in export markets requires new trade finance skills.  Granting credit terms to non-U.S. companies involves additional risk.  You can take action to lower your risks.  Knowing your customer is an important first step.   What follows are some simple tools for acquiring information about your customers and prospects.

Trade References

Knowing your customer’s track record with other vendors will help predict their performance with you.  The tried and true trade reference can be a good resource.

Credit Reports

Just as you would order a credit report on a customer if you were negotiating a large U.S. transaction, you should order a credit report on your large foreign customers, too.   The market for international credit reports is populated with specialty firms.  Contact Brett Tarnet Insurance Services for recommendations about providers in this specialty market.

Financial Statements

For transactions that exceed $500,000 as a rule of thumb, you should request financial statements directly from your customer.

Credit Insurance Underwriting

A credit insurance underwriter has specialized knowledge and access to information you may not be able to obtain.  They can act as a backup to your own credit analysis, providing additional feedback for your credit decision.

Summary

Evaluating the credit worthiness of a non-U.S. customer can be very similar to the process your credit department employs to approve a U.S. customer for a credit limit.   If the profile you develop does not present the picture of a credit-worthy company, consider requiring cash in advance, sight draft payments, or for larger sums, a letter of credit.