I attended a seminar recently. One attendee suggested that export sales are often more trouble than they are worth. She expressed frustration about the difficulties evaluating credit risk including the problems getting trade references and bank references, as well as the challenges often associated with collecting past due balances.
In my opinion, the opportunities that sales to foreign customers represent are so significant that most U.S. based creditor companies have no choice but to extend credit to foreign customers. Why? For all of the following reasons:
- Export sales can result in higher gross sales and higher net profits
- Exporting allows companies to diversify their customer base and reduce their risk
- Companies selling seasonal products may find demand higher in what is normally the low season by exporting
- Products that have reached the maturity phase or even the decline phase in the domestic market can be introduced into a foreign market and begin the product life cycle all over
- Companies with excess inventory or excess production capacity may be able to sell goods and maintain full employment and operate at full capacity without having to offer deep discounts to customers to do so
Yes, export open account sales can present significantly higher risk than domestic sales, and yes export credit sales require more specialized skills and expertise to manage but I believe the risk if properly managed by the credit department is more than offset by the rewards.
That’s my opinion. What is yours?
Michael Dennis’ Covering Credit Commentary. Michael’s website is www.coveringcredit.com.
The opinions presented are those of the author. The opinions and recommendations do not necessarily reflect the views of CMA, or their Officers and Directors. Readers are encouraged to evaluate any suggestions or recommendations made, and accept and adopt only those concepts that make sense to them.