Collecting Debt from International Clients
Collecting Invoices from Foreign Companies who delay or even won’t pay
Dealing with International Companies can be tricky. While there are great opportunities out there, if you are working with a foreign company, there are also risks. Unfortunately, many companies experience late or missing payments from their international clients. Many companies assume that working with a foreign firm is just like working with a firm within the United States, and it’s not. Below are several issues companies have when dealing with international clients and ways to avoid nonpayment.
The language barrier
The first thing many companies face when doing any type of business internationally is the language barrier. Your contract may be crystal clear in English, drafted with the help of the most exceptional attorneys. But don’t make the false assumption that a company in China, South Korea, or India understands the terms of the agreement if they have not asked for further clarification.
When dealing with foreign countries where English is not the dominant language, it is good practice to provide an accurate translation of the contract in both your client’s native language as well as one in English. Typically a translation service will charge $25 per page for a contract. However, if you are anywhere near a university, it is often possible to find competent translators for much cheaper. You can get translators on websites like Fivver, a well-known freelancer service, for as cheap as $5 per page. Also, consider writing essential payment information in red or bold ink. Be sure all of your payment information requirements are made crystal clear to your international clients before providing services and be sure to get an acknowledgment that they understand them.
Consider charging interest on late payments.
Another way to reduce the instances of late payments is to define in your contract, an amount of interest owed for late payments: banks, insurance companies, cable companies, and more charge late payment fees. You shouldn’t be any different. After all, many companies operate on a small profit margin, so getting paid on time is essential. Of course, you must have an international attorney to consult with because insisting on late payment interest charges is perfectly legal, while in some countries, it may be unenforceable. In all circumstances, it is necessary, however, to have interest charges or late fees agreed to before the transaction occurs as they cannot typically be added after the fact, even domestically.
Set limits on your own liability
There are many ways to limit the effect of unpaid invoices on your bottom line. The first is to demand full payment in advance on the first order.
Since establishing the creditworthiness of an overseas company is often tricky, you can demand 100 percent of the order be paid in advance on the first order, then scale back on subsequent requests to 50 percent or so. An alternative is to collect a deposit. If a client isn’t willing to cough up a deposit for your time and your valuable inventory, they probably also will be cavalier about making their payments. Another idea is to set both a maximum and a minimum amount of credit you will authorize. The maximum amount of credit you will extend is apparent, but the minimum is also necessary because many small invoices quickly add up.
Ask for payment references.
Many foreign companies are not that small. You are frequently one of a dozen companies they are dealing with regarding payment. Before shipping any goods, consider asking for the names of two or three companies they deal with within the United States. Then call these companies to verify if they have had any trouble getting their invoices paid. Accept only companies in the United States as references. If a business is in China and gives you three Chinese companies they deal with, It will not do much to establish their credibility in international payment. You most likely will also face difficulty verifying anything because of a language barrier, and the company could just as well be giving you the name of a local restaurant or laundry company.
Why is debt collection from foreign companies often challenging?
Besides the language barrier, why do foreign companies resist payment? One of the reasons, which is true even in the United States, is that missing or invalid information is submitted in the invoice. Since the information is invalid (and often those in your company know there are problems), the foreign firm is waiting for a call from you to sort out the invoice problem. Among Chief Financial Officers, 49 percent cited problems with the invoice itself as a reason for late payments. So be sure that is not the case. A full 27 percent of late payments, however, are due to customers simply not having enough money to pay. And in this case, a company has two choices, continuing to send escalating and ignored demands for payment or to turn the problem over to a debt collector.
Since the collection of unpaid invoices in a foreign country takes a significant amount of time, energy, and expenses, in actuality, hiring a good debt collection agency that specializes in collecting debts in foreign countries is essential. If they are successful, debt collection agencies typically charge a percentage of the amount collected. Despite these fees, however, many agencies are quite good at what they do and can collect a surprising amount of past-due revenue for your company in a time-efficient manner.