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How to do credit checks for foreign buyers for assessing payment risks and authenticity?

credit check

As an exporter doing international trade, it has become very crucial to determine and understand the overall financial health of a foreign buyer that you are trying to do business with. The primary concern should be whether the buyer will honour their commitment. One way to assess this is by making use of financial credit checks by obtaining credit reports. A credit report of a foreign buyer is something that can enable export businesses to evaluate risks, buyer’s ability, and willingness to pay. It also helps you understand whether you will have a reliable customer in the future.

Dun and Bradstreet (D&B) Report

screenshot of dun&bradsreet web landing page

An American company called Dun and Bradstreet corporation provides facts and figures regarding commercial credit and insights and analysis on business reports and information. Dun and Bradstreet focus on credit risk monitoring and the generation of business information reports of companies around the world, thus providing an exclusive solution to all its customers. The business information reports that the company supplies contains several types of credit scores, ratings, and data ranging from predictive (future) to performance-based historical – that can help an import-export business understand the overall reliability of a company and its financial stability. It also enables them to examine the amount of credit risk associated with the particular company if they do business with them. However, the cost per credit report of D&B is quite prohibitive but you can get very basic information in terms of Company Turnover, Date of Incorporation, No. of employees etc. for free of cost on their website.

Researching Shipment Data

Shipyard , we have various websites that can publish research data

Shipment data is past information regarding products that are exported, such as the name of the item, description, HS code, date of consignment, details of the importer, exporter’s details, mode of shipment. Some additional details may also include the weight of the cargo, cubic metrics, the destination of the shipment, shipper, consignee, loading number, departure date, and arrival dates. These past shipment data about the Buyer can help you get a basic idea about the genuineness and size of the Buyer (depending on record of Number of Shipments)

Initially, most people would make use of online directories and contacting ports to get such information regarding shipment records. This would lead to a tedious task and time-consuming for business associates, traders, manufacturers, and importers, or any buyer in specific who wants access to such details. Hence such a problem can be tackled by making use of online Export-import shipment data reports provided by data source provider companies. Such companies help you get business intelligence reports on export data quickly and easily, thus making it painless and trouble-free for the importer or exporter to make business plans and to gain profits beyond one’s expectations. It also enables you to keep track of the day to data operation of activities taking place during the import and export of goods, quantifying shipping metrics and improving the overall import-export business. Some companies that are widely used for this purpose include Panjiva and Import genius. Well, inspect these two companies in the following paragraphs.

1.Panjiva

Panjiva is a New York-based trade data company that offers import and export details of mercantile shipments happening across the world. It provides data for buyers and sellers.They primarily provided this information by third-party sources, such as different custom agencies, companies like Dun & Bradstreet, ZoomInfo and Kompass. One can use this information in a variety of ways such as to find suppliers and manufacturers overseas, new customers for products and services, tracking of opponent’s trading activity, and assessing the capabilities and financial health of a particular organisation before doing international trade with them. Major benefits of using Panjiva include:-

  • Panjiva reduces the costs and risks associated with doing business internationally. 
  • With Panjiva Search, you can dramatically cut the time and expense of finding new business partners. 
  • With Panjiva Alerts, you can spot risks in your existing set of business relationships—before those risks turn into losses. 
  • With myPanjiva, you can ensure that your own team’s knowledge about business partners is easily accessible.

2.Import Genius

Import Genius is another company based in the US that provides business intelligence reports of shipment information for all the shipments that enter the US and other countries across the world. As the company website suggests, they provide shipping histories for the world’s importers and exporters. Their data mostly includes import information from the bill of lading for shipments entering or leaving 12 countries, including the United States, Argentina, Chile, Colombia, Costa Rica, Ecuador, Panama, Paraguay, Peru, Uruguay, Venezuela, and India. The Import Genius database also comprises shipping records related to ocean freight imports, which can prove quite vital for competitive intelligence and supplier research, especially in the import-export industry. One of the most important features of Import Genius is the ability to give email alerts or notifications regarding shipments relevant to your business. For example, a person is importing goods to Colombia and one of their competitors is also importing the same goods. There are two things the person can do when such a situation arises: one is to go to your supplier and try to rework your contract or otherwise try to find new distributors somewhere else. Thus in this way, such information can be utilized efficiently and thus be used to the importer or exporter’s competitive advantage.

Bank or ECGC Reference Check

 Export Credit Insurance also commonly known as (ECI) provided by ECGC (Export Credit Guarantee Corporation of India) to exporters thus protecting them from incurring losses because of non-payment by overseas Buyers (refer to article by NuPhi on Credit Insurance )

By checking for Credit Insurance Limits against a particular Buyer either from ECGC or any prospect Buyer gives an indication of Buyer Financial Strength and payment track record.

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Local Country: Company Register and Public Documents

While doing import-export business with companies of countries abroad, it is very essential to check whether that company has been registered, to avoid further complications while doing trade with these companies. Also, knowing about the company’s financial status, health, whether they have a chance of going bankrupt, can play a very essential role in determining if a company is apt and perfect to do business with. Following is a table depicting each country and its company register along with information on whether there is a need to file public documents.

Country NameCompany RegisterUrlDocuments 
AustraliaAustralian Securities and Investment CommissionAsic.gov.au Yes
GermanyGerman Commercial Registerhttps://www.handelsregister.de/rp_web/welcome.do?language=en Yes
IrelandCompany Registration Officehttps://www.cro.ie/ Yes
UKCompanies Househttps://www.gov.uk/government/organisations/companies-house Yes
NepalOffice of the Company Registerhttp://application.ocr.gov.np/index.php/en/# No

Letter of Credit As Instrument of Trust 

In case even after all the search effort, what if, as an Exporter, you cannot build conviction or trust to deal with Buyer without receiving full payment in advance? A letter of credit is an official document issued by the bank stating that it will ensure and guarantee that a particular seller will get his/her due or payment by the buyer on time, with the correct amount and with no delays. If the buyer cannot pay the amount, it becomes the responsibility of the bank to cover the entire payment or remaining amount on behalf of the buyer provided that the terms and conditions stated in the LC have been met, thus making it look like a facility provided by the bank. In the process, the bank also charges a fee that is almost equivalent to a percentage of the amount mentioned in the letter of credit. It is one of the most secure types of payment terms opted by importers and exporters. 

Another alternative here is to evaluate Export Factoring (to be covered separately, meanwhile you may refer https://nuphi.credit/ .)  

Thus these are some ways of how an exporter or importer can assess credit checks of respective buyers and simultaneously ensure that all risks related to payment, prove crucial and helpful for importers and exporters worldwide, as it can enhance the level of authenticity and transparency needed in the import-export business and also help to make thought-provoking decisions to boost the overall economy of international trade.

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Jithisha Koshy