By: The Export-Import Bank of the United States
According to a U.S. Bank study, “roughly 82 percent of small businesses actually fail due to inefficient management of cash flow.” One of the catalysts for inefficient cash flow is outstanding invoices, which continues to be a major pain point for small businesses that try to remain financially healthy. Costs associated with late payments—such as interest costs or legal fees—must be avoided, and when domestic business turns into foreign business, collecting payment can be much harder, so we’ve identified some tips below to ensure your business gets paid going forward.
1. Develop a Systematic Payment process
It’s critical to set up an easy-to-use payment process system to allow your customers to receive automatic notifications, emails and alerts. For example, if a due date is coming soon, an email can be sent out automatically to the buyer or an alert can be sent to the exporter notifying them to call the buyer. Calling has served as a great customer service technique because it allows the exporter to establish a more personal relationship with the buyer.
2. Incentivize customers
As you start to build a relationship with your foreign buyer, it may be wise to incentivize a customer to pay earlier than the due date by providing a small discount on the total invoice price.
3. Communicate with your company
An exporter’s credit management process needs to be understood by everyone in the organization because there may be times when other internal departments play a part in collecting the payment. For example, an exporter’s sales group may communicate with the client more than the finance department, so being able to communicate, educate and enforce the payment process from all departments may help the exporter collect final payment.
4. Document, document, document!
Make sure there is an efficient document management system when collecting invoices (especially the signed invoices) and other payment conditions/notices. Each invoice must clearly state terms and conditions, but before sending out an invoice, have a lawyer review the initial invoice template with stated terms and conditions (and if modifications need to be made, have it reviewed every time for consistency).
5. Research, research, research!
Finding out information about a foreign buyer may be difficult, therefore, leveraging your relationship with the U.S. Department of Commerce local offices or your local trade association may help when doing your research on whether or not the potential foreing buyer is in financial good standing. Local credit bureaus or local Chambers of Commerce groups may also be avialable to provide information on foreign buyers and they also may have industry background data on payment tendencies (such as average days sales outstanding). Finally, visiting the foreign buyer in their home country may give an exporter a better idea of whom they are doing business with and helps to establish better relations.
EXIM Bank offers export credit insurance, which helps the exporter mitigate the risk of foreign buyers not able to pay. With export credit insurance, EXIM Bank will cover up to 95 percent of the invoice and, in addition, will vet potential buyers to ensure they are in good financial standing. For more information on export credit insurance, click on this link to set up a free consultation with an EXIM Bank specialist in your local area!