The Trading Division of Commercial Metals Company (Dallas, TX) buys and sells metal products worldwide. "We find buyers and sellers and put them together," explains Assistant Credit Manager Sharon L. Campbell, CCE, who has been involved exclusively in the international side of the business for two years now.

Among the many things she has learned in her position, she says the two of the most important are that:

1. International credit is ever-changing and always interesting. "Most people I've talked with in international credit, including myself, love it," she says. "We wouldn't go back to domestic credit. Every day is exciting, because we are always dealing with different countries, different customs, different requirements, and different ways of doing business. It is never the same thing twice."

   Editor's Note: This article originally appeared in the Credit & Collection Manager's Letter, which Credit Today purchased in 2006.

2. Because of these differences, international credit requires innovation, creativity, and resourcefulness. What works for domestic credit doesn't necessarily work for international credit, and vice versa.

Campbell talks about some of the differences and the importance of developing a new perspective in credit management.

Letters of Credit

Until a year or so ago, the company utilized letters of credit almost exclusively for its international transactions.

• Export Letters of Credit. In this situation, Commercial Metals is the seller, and the letter of credit is there to ensure that it gets paid once it meets the letter's requirements. "We must provide all the documents called for in the letter of credit, such as bills of lading and invoices, as specified," says Campbell. "If we fail to do so, we may not get paid." However, software is now available that will capture the information in the letter of credit and use that information to generate invoices and other documents, making discrepancies almost impossible.

• Import Letters of Credit. For transactions in which Commercial Metals is the buyer, the bank has provided software the company uses to transmit the letter of credit to the bank electronically, eliminating the re-keying step. "Now the bank gets exactly what we enter," she says.

While the software in both cases has helped streamline the process and keep discrepancies to a minimum, Commercial Metals has never really had problems with discrepancies. "We're very experienced in them and meticulous about our work," she says. "While the discrepancy rate nationwide is about 80%, our discrepancy rate is practically zero."

The real problem with letters of credit for the company was the reluctance of some customers to provide them because of the cost or the fact that it reduces their available credit lines.

Open Accounts

To address this challenge, the company has been allowing more and more customers to buy on open accounts. "We base the decision on the reputation and strength of the customer and the stability of the country where the customer is located," she explains. "In fact, country stability is often more important than the reputation and strength of the customer."

International open accounts pose their own risks, though, and require a different way of doing business than managing domestic open accounts. Again, creativity and resourcefulness come into play. Among the challenges and solutions:

• Challenge: While bank references are traditional for domestic business and relatively easy to obtain, they are extremely difficult to obtain internationally. "The United Kingdom, for example, has strict laws about the information they can provide, so it is virtually impossible to get useful information this way."

• Solution: To get around this problem, Commercial Metals has created an arrangement with its bank to contact banks in the U.K. directly. "When our bank contacts their banks, we're able to get at least some useful information," she explains.

• Challenge: International credit reports are often difficult to obtain, and even those that are available are not always particularly useful.

• Solution: Rather than rely on international credit reports, the company has learned to rely on three other useful sources of information on customers and prospects:

"We find that financial statements are relatively easy to locate internationally," she says.

Campbell also searches the Internet for information on foreign customers. "I'm amazed at the amount of information I can find on these companies," she says. "I can almost always find as much as I need, or more." (While a lot of the information is not in English, she is always able to find someone in the company who can translate.)

The company has divisions all around the world, so Campbell often calls them to ask for information on customers in their countries or neighboring countries. "Recently, for example, our International Trading Division in Switzerland was able to get an annual report from a German company that we needed information on," she says.

Other methods the company uses to secure and facilitate international transactions include:

• Bills of exchange. Under this system, a draft from the customer is sold at a discount to a bank willing to accept that draft.

• Credit insurance. "Credit insurance has long been the way of doing business internationally, especially in Europe," she says. "With insurance, we can sell to customers we might not be able to sell to with letter of credit or open account. Credit insurance also allows us to sell more to a customer that we might feel comfortable with in the absence of insurance."

• Negotiating loans for customers. One of the company's most significant challenges is finding reputable suppliers for the metals. When they do, the companies do not always have the financial resources to meet demand. "In cases like this, we might work with a bank to provide loans to these companies," says Campbell. "They receive the financing because we're standing ready to buy."

• "Contra arrangements." In these, Commercial Metals sells scrap metal to companies that turn it into steel and sell it back to Commercial Metals. To reduce A/R exposure, "we make sure that the steel manufacturers never owe us much more than we owe them," she says.

Collections

"If you have collection problems in the United States, you almost always have the option of legal action," she notes, "and it's not difficult at all to begin the action. Starting legal action in other countries, though, is rarely easy. It can be complex, and you have to know the laws of each country. If you sue a company in Mexico and it turns out that they don't owe the debt, you can be liable."

The first solution is to prevent the need for legal action in the first place. "Many of the people in our trading division are bilingual, so we spend a lot of time communicating with customers in their language," says Campbell. "We've built up good rapport with them, and we have few collection problems."

If legal action is necessary, the credit department works closely with the company's legal department, which then locates a reputable attorney in the customer's country. "We rarely need to do this, though."

Editor's Note: The above article originally appeared in the Credit & Collection Manager's Letter, a newsletter purchased by Credit Today in 2006. This article originally appeared prior to 2000.