Selling products and services internationally can bring a host of benefits to your business.
Yet it can also be risky, with non-payment being one of the top risks affecting exporters. Even trusted, long-time customers may suddenly be unable or unwilling to pay.
Read on to discover seven non-payment risks and learn how you can protect your company’s investment against the unexpected.
1. Your customer may declare bankruptcy
Research tells us 55% of businesses fail after five years and 71% after 10. More than 22,000 businesses in the U.S. went bankrupt in 2019.
With interconnected global supply chains, one bad debt can have a domino effect on your company and suppliers. A company that is still paying you on time can actually be insolvent—if, for example, they are borrowing from Peter to pay Paul, bankruptcies can happen quickly and without warning. During natural disasters, companies often have to shutter their shops or go out of business entirely.
We used credit insurance to protect us in a case a customer defaulted on their payment. I can’t take that risk.
Key foreign markets
U.S., Taiwan and Hong Kong
Natural and organic skincare and cosmetics
Portfolio Credit Insurance
2. Your customer may refuse to pay after you’ve shipped
In 2019 alone, Export Development Canada (EDC) paid out $64.7 million for nearly 1,400 claims in 101 countries related to non-payment.
3. Hostilities or changes in the market could impact ability to pay
War, political upheaval, changing regimes and even new government regulations could put your customer out of business or make it impossible to pay you. This risk applies to both developed and emerging markets, as the world grapples with turbulence and instability.
4. Your customer could unwittingly be involved in a corruption scheme
If your customer is involved in a fraudulent or corrupt scheme, such as email hacks and misdirected funds, they may not be able to pay.
5. Changing regulations may keep you from taking your money out of the market
If a market comes under a new regime, for example, they may create new regulations about how much money you can take out of the country, or your ability to convert funds to American or Canadian dollars.
6. Collecting a debt in an international market is much more challenging than in Canada
Going after a bad debt in an international market requires that you deal with their justice system, which may include long time frames, corruption, and more.
Even if you get a ruling in your favour, you may have difficulty enforcing it. You will likely be required to fly to the market and pay for lodging, legal fees, and the like. This takes money and time that you could be using to build and grow your business.
7. Even a small bad debt has a huge impact on your company’s bottom line
If you have a 20% profit margin, you’ll need $50,000 in revenues to make up $5,000 in bad debt. Smaller profit margins face an even bigger punch: if you have a 5% profit margin, you’ll need $200,000 of revenue to make up $5,000 in bad debt.