There is a saying, “When in Rome, do as the Romans.” That is a simple way to remember how to approach International Mitigation Tools. If your company decides to enter a new International market, as a credit manager (and risk management professional) you must be aware of the most common mitigation techniques that are used.
In my previous role as a Global Credit & Collection Manager, I was responsible for mitigating credit risk on six continents. In order to do this, I needed to ask a lot of questions and do a lot of research to find out what the most common mitigation tools were for each country, remembering that the laws and business practices in these different countries varied greatly.
These are just a few mitigation tools that I learned about as a credit manager:
- personal guaranty
- promissory note
- pledge agreement
- letters of exchange-Peru
- bank guaranty
- letter of credit (confirmed & unconfirmed)
- irrevocable letter of credit
- standby letter of credit
- cross corporate guaranty
- credit insurance
- postdated checks
- surety bond
- cash for documents
Depending on the country(ies) you’re doing business with, this list gets even longer. The aforementioned list does provide you with an idea of how complex International trade can be and how much there is to learn. The good news is that CMA has the experience, members, partners and the educational offerings to help you navigate and understand these techniques and tools, as well as many other issues affecting trade credit and International business.
One of these resources is a newly created International Best Practices Group whose first meeting takes place via teleconference January 23. You can sign up here. If your company sells internationally, or you plan to at some point, I strongly encourage you to take advantage of the knowledge presented in this group by your peers and industry experts.
Please call or email me with any questions or comments that you have, 702-259-2622.
All the best wishes for a prosperous New Year!
Patrick Spargur, CICP