Check a New Overseas Buyer Before You Give Credit Terms

Why check before you give credit terms

Credit terms move the risk to you: the goods leave before the money arrives. The most common causes of non-payment are the buyer becoming insolvent or simply refusing to pay, so the check is about both whether the buyer can pay and how it has paid others.

The U.S. International Trade Administration recommends cash in advance when the importer is a new customer or has a less-established purchasing history, or when its creditworthiness is doubtful or unverifiable. It also notes that cash in advance is the most secure method for the exporter and the least attractive one for the buyer.

Trade references and a bank reference

EXIM suggests asking the buyer for the names and e-mail addresses of 2–3 other suppliers that already grant it credit terms, and asking them how long they have sold to the buyer, the highest amount outstanding and how it pays. EXIM also notes that most international customers do not pay on the invoice due date, so ask how late payments usually are, not only whether they came.

For a bank reference, ask the buyer for its bank's contact details. EXIM says the bank may be willing to share information with a signed release or credit application from the buyer, and its sample letter asks whether the buyer holds an account, overdrafts or loans there and whether it has been a good banking client.

Credit reports and company information

A credit report from an outside agency confirms basic facts such as the year the company was established, and may add its financial figures, shareholders, related companies and a rating. The U.S. Commercial Service's International Company Profile is a background check on a specific foreign company for U.S. exporters.

Korean exporters can order an overseas company credit report from K-SURE (Korea Trade Insurance Corporation) through K-SURE ON: a summary report with financial information, shareholders, related companies, country information and a credit rating, or a full report that adds the foreign agency's original English report. A report made within the last 6 months is available the same day; a new one takes about 2 weeks, and financial figures may be missing where they cannot be obtained locally.

For a larger credit limit, EXIM suggests asking for the most recent year-end balance sheet and profit and loss statement; a buyer that wants a long relationship should be willing to share them.

Screening, and what to do when the checks are thin

Use the buyer's full legal name, its registered address and both the ship-to and invoice addresses, and screen the name against the lists that apply to you; in the United States that is the Consolidated Screening List, which combines the export screening lists of the Departments of Commerce, State and the Treasury.

When references are few, the bank will not answer or the report is thin, ask for payment in advance or a deposit with the balance before shipment, or a letter of credit, and keep the first order small. Export credit insurance, such as EXIM's in the United States or K-SURE's in Korea, can cover receivables against non-payment once you do give credit terms.