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Sample Export Credit and Risk Management Policies
By Michael C. Dennis, MBA, CBF

International Credit Articles
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Outline of an export credit policy

Here is an outline of an export credit policy. It is intended as a guideline. Not all of these ideas will be appropriate for every company and in every situation:

The credit department shall function under the supervision of the ________, and its activities shall be coordinated with overall corporation policy and the activities of the
sales department.

The primary goal of this policy is to avoid extending credit to customers who are unable to pay their bills. The policy contains specific documented guidelines related to credit granting authority, customer credit applications, and credit checks. This policy has a
direct effect on the profitability and cash flow of this business.

We recognize that a credit policy that is too strict will turn away potentially profitable customers, slow sales, and eventually lead to a decrease in cash inflows. An export credit policy that is too liberal will attract slow paying customers, reduce accounts receivable turnover, and eventually lead to cash inflow problems and bad debt losses. The credit department shall endeavor to find the right balance; that is, to maximize profits while trying to achieve the lowest possible days sales outstanding [DSO] and bad debt loss.

This policy will be revised and updated from time to time to attract and retain creditworthy customers, but is intended not to have a negative impact on our cash flow and profits. Export credit decisions are influenced by the perceived credit risk, the dollar amount of the sale contemplated, our profit margins and our company's appetite for risk.

Within the bounds of sound credit practices, the credit department shall endeavor to find suitable terms to sell to every customer that the sales department presents. However, the decision as to what constitutes a suitable credit risk shall rest entirely with the credit department.

In the event of a dispute between sales and credit about the creditworthiness of an applicant company or customer, the ________ will be presented with the facts by both the credit manager and the sales manager, and make the final decision.

The credit department will consider two factors in reviewing each export sale. The first is the risk of payment default [or serious slowness] caused by the customer's financial problems. The second is the risk that actions taken by the government in the buyer's country [known as country risk or sovereign risk] may prevent us from receiving payment despite the customer's best efforts and intentions to pay us on time.

Foreign customers requesting open account terms will be required to provide: three U.S. trade references, and a bank reference. We will obtain a credit report using our current contract. For credit limits in excess of $25,000 [US $] we will request the applicant provide a copy of their two most recent year-end financial statements. We will require [rather than request] the same level of financial disclosure from any foreign customer
requesting open account terms of $50,000 [US $] or more.

If the agreed upon terms of sale are letter of credit, the credit department will send the applicant our standard letter of credit instructions. Only changes approved by the credit manager to these standard terms will be acceptable to the company. Product will not be released and shipped until we receive a certified copy of the original Letter of Credit that is acceptable to the credit department, assuming that the issuing bank is acceptable to the
credit department.

The collector assigned to handle the account will contact each foreign customer with a past due open account balance at least once a week. These customer contacts are to be businesslike and dignified. The collector will discuss with their manager the status of any foreign account that is more than 30 days past due at least once every two weeks. Credit holds will be considered once any foreign account is more than 20 days past due...and holds will be imposed automatically if any foreign account becomes more than 30 days
past due --- unless the credit manager overrides the credit hold.

Recognizing the risks inherent in doing business internationally on open account terms, every active account must be updated at least once a year. Customers with credit limits in excess of $100,000 shall be updated at least every six months. Customers with credit limits in excess of $250,000 will be updated and re-evaluated at least quarterly.

We will require all invoices to be denominated in U.S. dollars, and require that all Letters of Credit terms will require payment in U.S. dollars.

This company will observe both the letter and the intent of the laws governing export sales. These include: The Foreign Corrupt Practices Act, various Federal Anti Boycott laws, and the various export control laws and regulations.

Any person with authority to release export orders or approve terms must first demonstrate a detailed knowledge of these federal regulations. No member without explicit authority to approve and released pending export orders may do so under any circumstances.

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