International business and credit information

Are you aware of import restrictions in Brazil? Have you experienced difficulties selling into China? Any collections in Mexico? Can you readily access balance sheet information on companies from around the world in English? Can you access business information from the Internet? Your business and credit information provider should be able to assist you in answering all of these questions while providing you with cost-effective credit and business data from around the globe.

Today's credit executive does not work in a vacuum. It is no longer sufficient to rely solely on a credit report when dealing with international accounts. Devaluations, restrictive import policies, and changes in government, along with a myriad of other factors affect any international business transaction, as well as your ability to monitor and stay on top of your foreign accounts.

Despite the need for a broader scope of knowledge, one of the key tools for accurate monitoring of your international accounts remains the credit report. Information obtained in an international credit report will be different from what you are used to seeing in the domestic context. That doesn't mean you have to settle for second best; instead you should know what to look for and adapt your analytical style for international accounts.

Freshness of Information

When reading a credit report on a foreign company, look for balance sheet information that is current and has not been sitting in someone's database for over one year. While reporting requirements vary from country to country, a comparative balance sheet from the last two or three years should be provided. The figures indicated should be in local currency. You need to be able to determine the value of a company's assets and inventory at the time when you are reading the report. Devaluations and currency restrictions will affect the convertibility of any currency on a day-to-day basis. Your calculations should reflect today's foreign exchange rate.

Identification

The company being investigated should be identified along with name and address. This is important because its offices may be located half-way around the world. You need to know that you have accurate information for delivery and billing purposes. Particulars about the corporate structure, management, shareholders, and affiliated companies should be provided in this section. In an international setting, the credit executive is often called upon to look beyond the pages of the report. Knowing who the principals are, how long the company has been in business, and how the company is legally constituted will add valuable data for establishing an effective credit policy. In addition, if you require guarantees from individuals who are involved with the corporation ("avals"), a practice often relied upon in civil law jurisdictions such as Latin America, this segment of the report will be of use.

Information about the target company's banking connections should also be provided. Most banks will not release information about their clients but if-you require assistance, need to locate assets, or require secured payment information, the bank is one good place to start.

Finally, the operation of a business should be briefly described. Anything from the number of employees to description of the actual business in which the company is engaged will provide you with a better and more complete picture of your trading partner.

Legal

Almost every country in the world has some form of judicial system that records proceedings in which any legal entity is involved. While it is vital to get accurate information on any legal actions pending against a company, the credit executive should realize that the concept of bankruptcy and the ability to petition a debtor into receivership or bankrupt status varies tremendously from jurisdiction to jurisdiction. From the outset, understanding that over half of the world employs a civil law paradigm as opposed to a common law system will help to conceptualize the differences between what is found in the United States. and what to expect abroad.

Trade Information

If at all possible, look for sources that supply trade information or trade references in the United States. This is a good starting point for evaluating whether or not to extend credit. While the information is not readily available everywhere, ask for it anyway. Paying invoices is a universal concept that applies to any company around the globe. Your analysis, however, should be tempered with information that you have gathered concerning payment practices in that country or in a particular industry. The credit report is only a microcosm of what is really happening in the overall credit picture.

Credit Opinion

While credit reporting agencies tend to be conservative in their credit opinions, this doesn't mean that you should not get one. While the credit executive is the final arbiter of a potential trading partner's creditworthiness, it is always good to have some point of comparison. A credit opinion that appears negative should immediately send up a red flag and be the cause for further investigation.

Many credit reporting companies are actively working on a credit scoring model that could be applied around the globe. The variables involved are enormous and generally accepted accounting principles have not yet been adopted or implemented in all countries. Until such time as an effective, international credit scoring mechanism is perfected, the credit executive involved in exporting should pursue all avenues for international credit education.

In the end, no matter which information service provider you select, remember to contract with a company that offers good coverage and complementary services. This will save time and effort in the long run and will prove cost-effective from both a contractual and time management perspective.

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COPYRIGHT 2004 Gale Group