Once a month, colleagues from the Small Business Administration, Department of Commerce and the Export-Import Bank of the United States (EXIM) meet with company executives to discuss government resources that are available for exporters. Often these companies have started exporting by sending goods on open account credit terms to a business associate outside of the U.S. They speak about their long-term relationship, how they like to play golf or share a meal when one party visits the other, and the trust that has been built over years of doing business together. Unfortunately, my mind leaps to several current EXIM customers who were in a similar situation. It didn’t end well.
Every company that sells on open account credit terms is taking a risk. When a small business sells on these terms to an international buyer, that risk is amplified. If an international customer will not or cannot pay, it will likely result in a loss for the seller. Regardless of the great relationship between executives at the two companies, unless you have visibility into your buyer’s books, you don’t really know what their financial condition is. Then trouble happens.
Collection 2000, a Florida-based manufacturer of personal care and perfume products, shipped more than $100,000 worth of products to a longtime customer who had always been diligent about paying on time. As with previous orders, the buyer was given 60-day credit terms. However, the invoice date came and went and the payment never arrived. Similarly, Aventure Aviation of Peachtree City, Georgia, sent an open account credit order worth hundreds of thousands of dollars to an established customer, who abruptly ceased operations, owing Aventure almost $15,000. Finally, a plastics manufacturing customer lost money on a sale to a long-term, well-liked customer in Canada.
Export credit insurance is an easy, low-cost way to protect the receivables generated from international sales. You insure your car, your house, and your valuables, why wouldn’t you insure your company’s financial assets? Contact your local EXIM representative to learn more about export credit insurance – how it mitigates the risk of nonpayment by international customers and lets you sleep at night.