If a business does not have enough assets to cover its debts it becomes insolvent. The key thing, therefore, is to reduce the risk in the first place.
For exporters, doing business overseas often exacerbates the various risks associated with insolvency. With transactions typically taking longer, payment can be slower, and there can be various local issues, both legal and cultural, which can disrupt trading.
While exporters can protect foreign receivables against various risks which might cause non-payment by foreign buyers with export credit insurance (ECI), it is not always an adequate substitute for debt recovery, as Paul Daine of Premium Collections explains.
“You can find it’s not available in all situations, and there may not be policies available for specific goods or destinations. Also, the policy may not cover the full costs of the shipment.”
“Commercial debt recovery can provide an efficient means for exporters to recover late payments and bad debts, helping to protect cash flow and guard against insolvency”
Tackling Cash Flow Problems
Paul advocates an approach that combines risk reduction and recovery, depending on the individual situation, and the debtor.
“It makes good business sense to have sound credit management in place in the first instance. This can help you identify potential risks and problem debt areas before you get drawn too deeply in”
Credit control should involve prompt invoicing and a clear procedure for following up payments overdue. It should also mean properly researching potential buyers and customers.
“It’s about being systematic,” says Paul. “However, for many businesses, they face a drain on resources to be able to do both this and focus on their core concerns, even though it should be central to how they operate.”
The solution is to seek professional guidance and outsource where necessary. This becomes especially important when it comes to debt recovery.
“A good accountancy practice is invaluable, but for specialist debt collection look to appoint someone whose expert focus is this area,” Paul recommends.
“With the right international expertise, including people on the ground locally, you can find the whole process of recovering money owed abroad that much simpler, and quicker”
Exporters simply cannot afford to let unpaid debts linger.
“Alongside exchange rate fluctuations, cultural, legal and linguistic barriers, and extended payment terms, cash flow is crucial for exporting,” Paul concludes.
For an additional read, please visit Exporters: How Trapped is Your Overseas Cash Flow?