If you are searching for new markets for the products you sell, you really should consider looking outside the borders of the United States as well as within. Doing business in a foreign country is not as daunting or risky as it may sound and there are plenty of experts who can help you find the right market(s) for your products and help you establish a safe and reliable billing process to minimize risks of customer default.
In this first of a four part series I’ll discuss things you can do to get ready to expand your business internationally from a CFO’s perspective. In the first part, I’ll discuss things you may want to do in order to strengthen your accounting processes in preparation for international trade. The second part of the series will give you tips on how to get started and will discuss the range of payment options that are typically used for international (& domestic) trade. The third article will discuss some of the things you should be aware of before opening a new market outside the U.S. and, the fourth and last article will introduce you to several great sources of help.
Why am I writing this? I have over 30 years of practical experience as a Finance executive helping companies with international operations achieve their goals. I am an expert in the field of credit risk management and in helping companies find cash, improve profitability and maximize value. I have an MBA and am a Certified International Credit Professional.
Before taking the plunge into the world of international trade you will first want to make sure that your company has a well-defined and well controlled process for managing existing receivables and the associated risks of offering credit to customers. Why is that important? Well, it’s because the discipline that is inherent in effective receivables management will play a large role in helping you be successful in managing the billing and payment processes you will use in selling to foreign markets. So, if your receivables management process needs to be shored up, now is a good time to do it in preparation for expansion into the wonderful world of international trade.
Also, keep in mind that Accounts Receivables often is one of the largest assets on a balance sheet and represents a substantial investment in terms of financial carrying cost. Good receivables management mitigates the risk of customer default and helps keep “days sales outstanding” and the cost of carrying receivables at an optimal level which, of course, contributes significantly to cash flow and the bottom line.
To be a bit more specific, here are two items that every company that offers credit to its customers should have in place:
- A written corporate policy that defines the company’s intent for using customer credit as a strategic cornerstone for building sales and market share. It should specify a procedures manual or document that contains the company’s procedures for controlling customer credit risk and it should define company-approved payment terms, e.g. 30 days. Some policies also contain a table that delegates authority for approving various levels of customer credit.
- A set of defined processes and controls for administering the policy. This should include:
- A procedures manual that defines the specific steps that are to be taken in evaluating the credit worthiness of new and existing customers and for granting and managing credit limits and credit terms
- Microsoft Word and Excel templates to insure that appropriate research is conducted and considered before credit is granted to any new or existing customer. These templates may include checklists and worksheets that can help those who are involved in the credit approval process determine justifiable credit limits
- Defined financial control points in the process to ensure that customer accounts are maintained within approved credit limits
- A process for ensuring that the policy and procedures are being followed as intended
As in any endeavor of value, preparation is the key to success. Whether your company is big, small or somewhere in between, having a defined credit risk management policy and procedures will save you money, improve your cash flow, and enable you to grow more profitably.
In the next installment I will offer some tips on how to find a market outside the U.S. and the various payment options that are available to you.