Are you using irrevocable letters of bank credit to sell to European customers? If you are, you may be wasting money, according to Robert Aeschliman, president of American Agencies, Inc. (Westmont, Illinois), and a member of the League International for Creditors (Cologne, Germany). Aeschliman lists these guidelines to follow before shipping to an existing European customer on open account terms.

1. Draw an international credit report to determine how the customer is paying its bills with other European or American firms. This report should indicate net worth, level of profitability, and what the probability is that they will pay their bill on time, given open account terms. Organizations providing these reports include Dun and Bradstreet's international division, the LIC, and American Agencies, Inc.

2. Make sure your customer has a clear understanding of your credit terms. "When drawing up the terms for your invoice, there should be what the European Economic Commission refers to as 'transparency in transaction," Aeschliman says. "Transparency basically means that there's a clear understanding between the seller and the buyer of the invoice terms." If, for example, you say your terms are net 30 days, he notes, you must make sure your customer knows where you mean 30 days:
   • from the date of shipment, or
   • from the date of the invoice, or
   • from the date the product is actually received by the customer.

3. The seller and buyer also need to agree on the monetary value of the transaction. "You need to translate the currency involved into U.S. dollars or English Pounds, for example, and arrive at an equivalent value of an invoice," he says. "And you need to agree on the exchange rate as of the date of shipment, and to fix the price as of a certain date. That price should not fluctuate despite fluctuations in the currency."

Transparency is much more important in international than in domestic transactions. This is because if you are shipping a product from the United States to Europe, the shipment may be delayed en route. The products may go into a canister and onto a ship. They may arrive at a foreign port and have to be transported over land by truck or rail.

"It may be three to four weeks from the time you ship the products until your customer actually has possession. So when you say 'net-30-days terms,' what we mean by transparency in transaction is that both parties must have a very clear definition of the terms used in the invoice. If there is that clear understanding between the seller and the buyer, you shouldn't have any problem about when the invoice should be paid."

Credit for New Customers

When you are considering doing business on a credit basis with a new European customer, and you don't know their track record for paying their bills on time, Aeschliman recommends that after drawing an international credit report and getting references from their bank, you talk directly to several of their suppliers to find out whether they extend credit to the company, and whether they are paid promptly according to the terms of their agreement.

"You must do your homework. You need to concentrate on developing solid credit information on your prospect. And I can't emphasize too strongly this concept of transparency because so much can be lost in semantics--and then problems will arise. You need a clear understanding, along with your customer, about what the price is going to be, the terms of sale, when the terms begin to run, when payment is due, and the penalty the customer will pay if they do not meet terms.

"If these are things understood in advance," Aeschliman sums up, "it forms the basis for a solid ongoing business relationship."

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