Time To Collect
When Deborah Walliser started her San Francisco company, Got Produce? Franchising Inc., she didn’t expect collections to be a big problem. Since 2013, Got Produce? has sold its vast, hydroponic greenhouses to entrepreneurs who want to sell and grow produce in places such as Namibia and Botswana.
These clients, who sometimes partner with non-governmental organizations (NGOs) to purchase the greenhouses, pay Walliser’s company up front, anywhere from $250,000 to $1 million. The structures are in demand because growing plants inside of one can help address local water supply issues. “It only uses 2 percent of the water you would normally use in the field,” says Walliser. As a result, her firm, founded in 2011, is thriving. It anticipates $10 million in revenue for 2015.
But Walliser has a nagging problem to tackle: Once clients start selling the lettuce, tomatoes and other produce they raised, they must pay her franchise company 7 percent of the revenue from these sales as a royalty. Some customers try to get away with not paying at all and some fudge the numbers to pay less, taking advantage of the fact that it is harder for her to go after them from California. That forces her to put “boots on the ground” in the countries where they are located, so she can collect, she says.
“I spend much of my time flying to these distant locations,” Walliser laments.
She is not alone in dealing with this hassle. For many exporters, collecting money owed from clients is a nightmare baked into doing business overseas. When you’re working with clients in distant countries, on many fronts it can be even harder than in the U.S.—from dealing with unfamiliar commercial laws to payment processing.
“Anything that has to do with cross-border payments is painful to deal with,” says Marwan Forzley, a 20-year veteran of the payments industry who is CEO of Align Commerce, a payment services provider for global commerce located in the San Francisco Bay area.
Align, aiming to alleviate some of the pain, offers a technology that lets companies wire money to each other’s bank accounts without sharing their bank account information directly with each other.
Fortunately, there are several key ways to spend less time chasing down money. Here are some tips from entrepreneurs and experts.
WEED OUT DEADBEATS EARLY
Before working with a customer in a new overseas market, do your homework on what it is like to do business there and what the payment customs are. U.S. businesses may favor 30-day payment cycles, but that isn’t true everywhere. The HSBC Global Connections website offers free country guides that can help you get a realistic picture.
Using a market intelligence service such as Accellus World Check can help you get the lay of the land and due diligence on a potential customer quickly, says Mark Luppi, executive vice president and head of business banking for HSBC Bank USA. If you work with an international bank, your banker may be able to assist you, too. “I can make a call into that country and check our database and find out about that particular vendor and customer,” says Luppi.
That said, there’s no substitute for a face-to-face meeting with a customer. “A quick trip can sometimes create the right sort of connection and give you a chance to kick the tires,” says Luppi.
FOLLOW THE MONEY
Before you sell a product to a new customer overseas, make sure you consider upfront costs, know when the product will likely be ordered and when you will realistically be paid. That will help you identify if you need any banking products to maintain good cash flow.
There are a number of products business owners can consider, says Luppi. For instance, with a letter of credit, the bank guarantees you will get paid. You may also want to get trade credit insurance that guarantees accounts receivable. Some policies cover you in the event someone pays you late. “If you are supposed to pay me in 30 days and don’t, I can go to the bank to make me whole,” Luppi says.
FIND A SMOOTH WAY TO PROCESS TRANSACTIONS
If are you are dealing with slow payers, the last thing you need is for cumbersome payment processes to delay the money even longer.
Switching from checks to digital forms of payment can speed things up, but for smaller payments, the fees from methods such as wire transfers can cut into your profits. For such payments it may be worth looking at new, digitally enabled types of payments that are springing up. Align Commerce, for instance, charges fees from 1.9 percent to 2.9 percent to transfer money from a customer’s bank account to your own. “It’s like a credit card on the lower end,” says Forzley. The service is popular, he says, with international consultants and import-export accountants. Other entrepreneurs use services such as PayPal and competitors such as Stripe or Skrill.
NAVIGATE THE LEGAL HAZARDS
Collections are tricky enough in the U.S., where you and your clients must operate under the same legal system. But they can be even more challenging overseas, where U.S. laws may not even apply. The only way to protect yourself is to put systems in place to ensure you get paid even when a foreign government does not honor contracts you have signed with a customer.
At Got Produce?, Walliser learned this the hard way. Once clients started selling the lettuce, tomatoes and other produce they raised in her greenhouses, they owed her company 7 percent of the revenue from these sales as a royalty.
Bringing them to court didn’t always work. “A lot of foreign countries don’t recognize a U.S. contract,” she says. And in some cases, they told her company to back off. “Depending on the economic and diplomatic relations with the U.S., we’ve had some countries say stop harassing our business owners here,” says Walliser. “We’ve run into a lot of that.” In her experience, South Africa and Senegal have been among the most supportive countries with which to do business as an American firm.
In case courts are not supportive, Walliser’s company has realized it needs to build strong local relationships. “We go to our clients’ customers and say you can’t pay our client anymore, you have to pay us,” she says. The company has also established joint ventures, teaming up with a local businessperson who has the lay of the land to handle compliance in a given territory, but still retaining majority control. “To get your customers to realize you’re not 20,000 miles away and [unable to] do anything, you have to invest time and have a presence,” she says. And when she can’t show up herself, having local a partner is very handy.
Commerzbank Processes First BPO Live Transactions in Austria