Minimize Risk When Exporting: Assessing Foreign Buyers
Looking to expand your business internationally? While exciting, it comes with added risk. Thoroughly vetting potential foreign partners and buyers is crucial for minimizing risk and protecting your business.
Why Research Matters:
Many companies underestimate the importance of researching your foreign buyers. Insufficient research can lead to a potentially bad business decision. Having a good understanding of your customer and the foreign market is crucial to being successful while exporting your goods and / or services.
The Four Cs of Credit:
A helpful framework for evaluating foreign buyers is the “Four Cs of Credit”. These four areas provide a starting point for assessing risk:
- Character: Can you trust the buyer to fulfill their obligations? Request documentation like past transaction records, payment history, references, and employment/credit history. Character is often considered the most critical C.
- Capacity to Pay: Does the buyer have the ability to operate successfully and pay invoices on time? Having a credit check done on your perspective buyer will provide you the answers needed to make an informed decision on your foreign buyer.
- Capital: What is the buyer's net worth? While not always applicable, understanding their net worth can offer insights into their ability to pay.
- Conditions: How will external factors impact the buyer's business? Research the political and economic climate in the buyer's region, particularly any events posing potential threats. Be aware of industry cycles and national/international economic changes.
Remember: The Four Cs are a starting point, not an exhaustive list.
The Export-Import Bank of the United States (EXIM) can help further help your ability to mitigate risk when exporting through our Export Credit Insurance policies. These insurance policies provide up to 95% coverage on your foreign accounts receivable and allow you to be competitive by offering favorable credit terms to your foreign buyers. To learn more, request a free consultation with one of EXIM’s trade finance specialists today!
Whether you are new to exporting or just getting started, always remember…Do Your Homework!
