This is part of the Guide to Successful Marketing and Selling to US Importers.
This guide has a chapter containing more comprehensive information on
how to find out if a US importer is reliable or not.
For more information, click here.
How can you make sure that a US importer or buyer is reliable and will do what they promise?
You can't.
There is no way to make 100% sure someone who buys your products will do exactly what they say they will do all of the time. Whenever you sell there are risks. Your customer fails to pay. Or you get sued for harm caused by your product. A company pays you on time for years and then suddenly goes bankrupt. A company sells your products at respectable places for years and then starts selling them at a flea market.
Decreasing The Risk
There is always a risk. Always. The key to your success is to decrease this risk as much as you possibly can. Realizing all the time that you cannot decrease this risk to zero. Realizing that times change, companies change, markets change.
Some risks you can guard against. You get freight insurance in case the shipment is lost at sea. You try to get paid in your own currency in case there is a change in the currency rates. You make sure your quality is good so that the importer cannot threaten to return goods because of poor quality.
The biggest risk that most exporters face, however, is failure to get paid. This can lead to cash flow problems and if the nonpayment is large enough if can even force the exporter out of business.
Your best protection against nonpayment is asking for an irrevocable letter of credit. When you the exporter receive a letter or credit (L/C), you know that someone other than the buyer (a bank) will make payment to you as soon as you have delivered the shipment of goods and the bank has given the necessary documents to the buyer and has all other obligations of the L/C have been fulfilled.
The buyer knows that the payment will be given to the seller only after the documents of shipment have been submitted. This is actually nothing more than a sophisticated cash-on-delivery (COD) transaction requiring both parties to act. The L/C protects both the seller and buyer in both distance and time.
Not 100%
Even L/Cs have their drawbacks. Your money will be paid only after the required documents have been given to the buyer and only if they are filled out properly. A missing document or a document with incorrect or missing data can hold up payment is the situation is rectified. Your best protection against this is to make sure that all documents are supplied, they are filled out correctly, and all other requirements of the L/C have been met.
US Importers Often Request Generous Payment Terms
There are so many exporters around the world that are eager to do business with the US, it is easy for US importers to pick and choose who to do business with. If a US importer wants to pay after the shipment arrives, or if the financial situation of the US importer does not allow for payment when the shipment arrives, he/she may asks to pay 30, 60, or even 90 days after the shipment has arrived. If this is the case, you as the exporter want to do two things:
1) sign a time draft (also called date draft). Here the buyer agrees to pay after a certain period of time. Be sure to be clear when the time of payment is. Do not write just "net 30 days". 30 days from what? Be specific: "net 30 days from acceptance" or "net 60 days from date of bill of lading".
2) check out the reliability and credit worthiness of the buyer. More detailed information on this can be found in the Guide to Successful Marketing And Selling To US Importers.
Checking On A US Importers Financial Reliability
If a US importer asks you for payment terms you have the right to check on that person's or company's financial status. It is the same as asking for credit from a bank. What bank would loan money without first checking out the customer? None. And no exporter should either. Giving credit terms to an importer that you don't know and have not checked out is a recipe for trouble.
There are two ways to check on an importer that has asked you for credit. The easiest, most expensive, and perhaps most reliable is by using Dunn and Bradstreet (www.dnb.com). This company will check on the US importer for you and give you a report - for a fee. Based on this report and on any other research you have done on the importer you can make as informed a decision as you possibly can on whether or not you should offer credit to this importer.
A more difficult, less expensive, yet perhaps less reliable way to check on the financial strength of an importer that has asked you for credit is by doing the research yourself. Some companies like checking out the importer themselves. For others it's a cost saving decision.
To check on an importer's credit worthiness yourself, ask the importer for a list of references. This list should include their suppliers (preferably in your country) , their buyers (in their country), and other references like banks, chambers of commerce, etc. It is your responsibility to check out this list carefully. Remember three things: 1) this list is going to be a select list that they want you to see, 2) you should NOT give credit to any importer that refuses to give you a list of references after asking for credit terms, and 3) you should give credit in the amount that it would harm your business in the event the credit is not paid.
After checking the references carefully you can determine if you would like to offer the US importer the credit they have requested. There is no way to be 100% sure. But with careful research and common sense you can decreased the risk as low as possible.
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