When exploring opportunities for international business, the value of thorough research cannot be overstated. Once you've identified a potential market or trading partner, these are some of the key checks you need to make to help maximise your growth potential and foster mutually-beneficial trading relationships.
Doing your research
Maintaining high standards of due diligence is one of the keys to international success. Background research should include checking bank and trade credit references. Thorough due diligence can help to protect you from undesirable trading relationships which could damage your profits and your reputation.
Assessing country risk
Countries that have the most growth potential can often be the most unstable. If a market has a volatile foreign exchange rate, changing banking regulations or restrictions on inward investment, this warrants careful investigation. It may be these are risks you're unwilling to take.
Due diligence applies equally on the supply side. Importers need to consider whether potential suppliers have robust business recovery arrangements in place, and how their ability to deliver might be impacted by any known country risks.
Vetting a trading partner
Nothing beats a face-to-face meeting before starting a new international business relationship. But if that's not possible, there are alternative ways to assess if a company is all they claim to be. To minimise potential losses through fraud, be alert to behaviour and requests that seem unusual or that differ from standard practice.
Points to check
Scrutinise all correspondence received, eg letters, business forms, invoices etc. If they don't feature a professionally designed logo, this may be a warning sign.
Is the address complete? Does it actually exist? Use online mapping services to see a street view to help gauge if it's authentic.
- Online presence
Established businesses usually have registered domain names. Does their website look like a professional shop window for their business activities?
- Social media activity
Comments from customers and employees can be a useful starting point for further investigations – but remember not to believe everything you read.
- Trade credit insurance
Consider using a trade credit insurance provider to vet new trading partners – this can be an invaluable way to verify their credibility and suitability.
- Site visit
A face-to-face meeting lets you vet your potential customer or supplier and how they do business, which can help to inspire more confidence.
Pay close attention to these warning signs
- Is this potential trading partner reluctant to provide clear answers to routine financial, commercial, technical or other questions?
- Is the transaction in keeping with their stated business strategy?
- Are they deviating from their historical pattern of trading activity by value, frequency or type of goods?
- Is pressure or aggression being applied?
- Are there any comments about the trading partner on social media worthy of further investigation?
- Are there significant discrepancies between the description of goods on the bill of lading (or invoice) and the actual goods shipped?
- Have there been inconsistencies with the shipment location, terms or descriptions and the Letter of Credit? Have they made unauthorised alterations to documents?
- Do they refuse to provide documents to prove shipment of goods?
- Have there been unexplained changes to payment instructions?
- Are they issuing instructions to pay a third party? Is a shell company party to the transaction?
- Does the transaction involve the receipt of cash (or other payments) from third parties that have no apparent connection?
- Are they offering unusually favourable terms (eg pricing substantially far above or below the expected market rate, an interest rate substantially above/ below the prevailing rate, or a lump sum cash payment)?
- Does the transaction involve an unusual trigger point for payment (eg before goods are shipped, with no documentation required)?
- Does the shipment not make economic sense (eg the use of a 40-foot container to transport a small amount of relatively low-value goods)?
If the answer to any of the above is yes, you may wish to reconsider your relationship.