International trade is fraught with uncertainty and getting paid is never a sure thing, but there are steps you can take to limit the risks before the nastiness begins. Remember, extending "open account" credit terms as a competitive tool with EXIM Bank export credit insurance is conditional on meeting policy requirements. Before you send the final letter demanding payment ask yourself the following three questions.
Do you know why your foreign buyer stopped payment?
There are many reasons that payment problems could occur. Not all of them could be the fault of the buyer. One Source Risk Management, a credit insurance broker, lists several common causes for nonpayment. For example, one of your buyer’s key customers could be in default, or the local banks could have tightened credit constraining cash flow or fraud might have been perpetrated on the buyer. Your buyer may be willing to pay, but not ready and able.
Perhaps there is a change in credit management at the company and they are not familiar with your policies or your own credit division dropped the ball. If you don’t enforce your own credit policy, you could be the cause of your payment problem. Ensure your customer is aware of the consequences of late payment on their supply chain and bottom line. Assess surcharges for late or missed payment and send notifications promptly. Perhaps it’s simply a misplaced invoice or the manager has taken extended vacation or sick leave? Betsy Markey of the Small Business Administration recommends a simple and polite inquiry can go a long way towards encouraging payment and at least begin to get to the bottom of the payment problem. In some instances, if third party fraud is involved, then both you and the buyer might still be covered. You won’t know until you do some investigating.
Disputes do not constitute nonpayment. Is there a dispute on the quality of your shipment or price? Was the shipment damaged or stolen? Did you provide the goods stipulated in the contract? The good news is if the dispute is resolved in your favor, then the claim will be processed. Read how Collection 2000 Cosmetics saw the good, the bad and the ugly of a buyer nonpayment situation, but came out on top thanks to EXIM Bank's Multi-Buyer Credit Insurance.
Are you willing to end the relationship?
A hard choice, especially if the buyer is one of your largest customers. Maybe this customer is the reason you started exporting in the first place. Perhaps you attended an industry trade show where the International Buyer Program gave you the opportunity to meet face-to-face with potential customers. You met a family concern who built their company up from the ground, like your small business. You developed rapport and eventually the trust needed to offer favorable open account terms. It took time and effort but you knew the payoff would afford you a foothold in a growing market with high demand for your product. Now your buyer has defaulted. Maybe there were signs or maybe not; regardless, what should you do?
Of course, your business comes first. Not handling your late payments threatens your company but once you declare nonpayment and file a claim, the relationship is effectively over. Consider the time and effort that went into building the relationship with your buyer. If they are one of you major accounts, consider what the loss of that account will do to your bottom line over the long term. As mentioned above, there are less damning alternatives than waging an aggressive campaign to collect overdue accounts, but make sure your bases are covered before filing.
Are you in compliance with the requirements of you policy?
Perhaps you were too generous and waited patiently for before submitting your proof of loss. To have your policy paid in full, you must file within 240 days from the date the invoice was overdue. It is important that you understand and abide by the requirements of your insurance policy. Always document each transaction as if it is going to result in a claim–don’t assume. If for any reason you risk non-compliance with the conditions, you may request a waiver or amendment. Assurance of repayment is under your control . . . mostly.
Check that all your shipping and customs documents to the buyer are in order. You must have shipping documents that show the items you sold were shipped outside of the U.S. or you must abide by the terms of an endorsement that allows you to ship to a domestic location. Make sure you’ve kept accurate records of all correspondence and records related to the dispute. Do you keep up with all premium payments? Nonpayment or underpayment of premium fees is a common cause for claim denial.
Contact your broker or your EXIM relationship manager for assistance. When you insure with EXIM, our goal is to help you file complete and correctly documented claims so we can pay them quickly.