Read The Question & Answer Give Your Opinion Do You Agree Or Disagree? Why Or Why Not?
Quenstion: Why is it more difficult and riskier to collect receivables from a foreign purchaser?
Answer: One of the greatest concerns an exporting company has is to make sure that it can collect payment from its foreign customers. An international transaction is perceived to involve a greater non-payment risk than a domestic sale. What is difficult about selecting an international sales term is managing the delicate balance between protecting the interests of the exporter and offering good customer relations (David, 286).
In regards to credit information, there is less information available about the creditworthiness of a creditor in a foreign market than there is about a domestic customer. This information is not always available or exists for a customer that is new or in a developing country. Collecting credit information is expensive and more complicated for a foreign customer (David, 287). Even the form of payment can affect this type of transaction.
Commercial risk, country risk and exposure are all issues that affect payment (David, 291). A customer’s country may not have the foreign currency to pay the debt, or the customer is not allowed to pay. Political unrest, chances of a strike, and variations in interest and exchange rates should also be taken into account.
Lack of personal contact in international transactions exists because the mode of communication used is impersonal, such as in email and fax. This can lead to a climate in which the exporter isn’t able to evaluate the character of the importer because there is no face-to-face contact. This leads both to be more cautious of each other (David, 287).
In cases when agreements are not honored, collecting past due payments can be very difficult. There are only a few firms that offer international collection services, and they can be expensive. Laws also aren’t as strict as they are here, so enforcing promises made can be challenging, if not impossible (David, 287). The costs involved with litigation are another problem, and the process can be time consuming (David, 288).
All these issues combined lead importers and exporters to be distrustful of each other. A business relationship can be damaged permanently before it has a reasonable chance to grow solid (David, 289).
Distance and time zones also can disrupt efforts to collect international debt. Some ways to combat this are to know who your customers are, get everything in writing, build good and multiple personal relationships with your customers, speak to people using the telephone, and when necessary, use collection agencies and/or sue.
Answer - Yes , I agree with the given answer to the question. When the matter is about a debtor sitting in a foreign country , a lot of matter need to be considered. These include the convertibity of the currency , the government rules and regulations , the credit rating to know whether the debtor is good enough to make payment on time , the mode of payment and ofcourse the business relationship between the debtor , creditor and also the relation between the countries. Also the payments when international , take time to execute. Hence in order to prevent any conflict or losses , everything should be talked about , decided and contracted in written form to avoid any ambiguity in the transactions.
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