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Have you safeguarded your international credit and investments?

Every global company needs to plan for uncertain circumstances and understand the risks involved in their business decisions. Taking steps today to safeguard your operations and investments across borders just might save your business tomorrow.

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From the slow-motion train wreck that is Brexit to the political paralysis in the U.S. and the ongoing strife in Venezuela, a number of storm clouds are hovering over the international business community. Anyone running a company that relies on international dealings should be wary of how all of this uncertainty will affect every actor on the global stage.

In this tumultuous era, the ability for businesses to carry on can be under threat, as can investments. Major political shifts can impact input costs and customer behaviors, and operations can come to a halt if you can’t get goods across borders.

For businesses to run with stability in an unstable global market, they must first adapt their investments, allocations of resources, and growth plans according to just how uncertain markets are. Whether those markets are growing or declining—as well as a company’s current positioning within them — can affect how aggressive it can be in reaction to potential market fluctuations.

The risks and what they mean

Each country carries its own risk. Moving operations abroad might be a great strategic move for your company, but it also might be hazardous depending on where you’re considering expanding. Some countries rank better than others in terms of taxes, innovation, corruption, property rights, and infrastructure, to name a few criteria. For instance, well-developed European countries are lower-risk locations, while Eastern European countries could be labeled as more moderately risky. Then, there are countries that carry severe risk, like South America or the Middle East.

Financial concerns should obviously be considered, but business leaders should also be aware of compliance issues and sanctions with the potential to affect trade with countries like Iran or Russia. Political tensions might not appear to directly affect business relations, but the greater fallout surrounding these tensions can be highly detrimental to operations at firms that deal with or are housed in these countries.

I have a good friend who produces toys for the retail sector in the U.S., but all of his company’s products are manufactured in China. Because of current political tensions and the risks that exist because of them, he’s eating costs after the U.S. increased tariffs on about half of imports from China. The Peterson Institute for International Economics found that China retaliated with tariffs on over 70 percent of U.S. imports. As a result, some of these extra costs are passed to consumers, but businesses that have essential operations and trade in both countries have suffered, too.

4 ways to weather turbulent times

Companies can try to “spread” or alleviate risk by diversifying their customer and producer portfolios so the political tensions in one country don’t determine an entire corporation’s well-being. But there is more to safeguarding investments and credit than simply spreading risk when conducting business across international lines. Several specific strategies can help business leaders stay stable in these turbulent times:

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1. Monitor the credit performance of all your customers.

It’s easy to succumb to a false sense of security when customers are paying you on time. You have money coming in, and everything seems stable. The fact that they’re asking for more credit might even appear to be a good thing because they want to buy more from you. But if you delve into the inner workings of that business, you might find that things are actually deteriorating.

A business’s payment history with other companies can determine the risk of working with them. Utility bills often get paid first because the lights have to stay on for companies to maintain basic operations. For this reason, if you see that a company is late paying its electric or water bill when examining credit data, it’s cause for concern. Some businesses have late payments built into their strategies, but not when it comes to these necessities.

If a business is always 20 days late on its other bills but eventually makes its payments, that doesn’t necessarily raise the same alarm. It is, however, a red flag if a business has always settled payments on time and then suddenly starts making late payments months into the relationship.

Fortunately, monitoring credit performance has become extremely affordable. Outstanding debts or liens aren’t desired, but when you evaluate a company’s credit patterns, you’re getting real-time data that can indicate a lot about the risks of working with certain customers.

2. Take the health of specific industries into account.

If you’re working with a company overseas, examine how its industry is performing in that country. If its product isn’t having success in a certain area, watch the market carefully and plan accordingly. You might have a great business model on paper, but if people aren’t responding to a product in general, anyone will struggle to find success there.

There are several indicators that might reveal that a supplier—and, therefore, potentially that industry—could be in distress. For a manufacturing supplier, indicators might include late deliveries, requests for technical support from customers, hiring financial advisors, delayed financial statements, turnover in key management positions, price increases, and changes in the debt structure. Dig into these types of criteria within your industry to determine that industry’s health in the country you’re looking to expand to.

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3. Negotiate with your customers.

Sometimes, you have to negotiate to work with customers you want in places you might not want quite as much. Think of a Greek company that wants to work with a customer in the U.S., for example. There are concerning factors with this relationship, but the company desperately wants to extend this customer credit and wants the sales. Things look like they might not add up well based on the information the company has access to, but it wants to find a way to make the relationship work regardless.

In cases like this one, the best course of action might be to go to the holding companies of your prospective customer and ask for a guarantee that, even in the case of bankruptcy, payments will be made. Negotiating can let you secure this guarantee and then do business with the desired company, even in unstable circumstances.

investments underwriting
Credit insurance and letters of credit are both viable alternatives to underwriting credit risk. (Photo by DepositPhotos)

4. Consider methods of underwriting risk.

Credit insurance and letters of credit are both viable alternatives to underwriting credit risk. Both can be quite affordable, particularly if you’re trading with problematic countries. The more risk that’s associated with the sector you’re operating in, the more sensible it is to take out insurance. It can be another way to give you peace of mind that you’ll be able to secure payment even if problems arise.

The Export-Import Bank’s Multi-Buyer Credit Insurance, for instance, protects exporters’ accounts receivable. When companies have this protection in place, they can boost their global effectiveness by offering open account credit terms, which are crucial for winning sales. Plus, exporters can overcome cash flow issues by borrowing against their insured receivables.

The global political climate of today is unsteady. Because of this, every global company needs to plan for uncertain circumstances and understand the risks involved in their business decisions. Taking steps today to safeguard your operations and investments across borders might save your business tomorrow.

(Featured image by DepositPhotos)

DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.

Matthew Debbage is the COO of Creditsafe Group and the CEO of Creditsafe USA. He has been responsible for Creditsafe’s international expansion across Europe, Asia, and the U.S. Matthew has been building a career in business intelligence and company credit management solutions for more than a decade and has developed global expertise along the way.

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