There are times in business with bad credit where you face a brick wall situation. You have an enthusiastic and interested customer who wants to place a huge order with you and a supplier who, after months of hard negotiations, has given you a fantastic discount. Your eyeballs have dollar signs in them as you are already planning your next beach vacation with the profits you are about to make. But then, there's a hitch... bad credit.
The Story of Bad Credit
The supplier decides to take out export credit insurance to cover himself just in case anything happens to the goods on their way to you, or war breaks out in your country, or you go bankrupt before the delivery or you simply refuse to pay. As you are in another country, it is wise of him to do this - he's never met you face to face, he doesn't know if you have good or bad credit, your circumstances and what a nice trustworthy and honourable person you are.
If he had purchased a credit report on you from a reputable supplier he perhaps could have made the decision without taking out insurance, but he is a sensible man, it is a large contract and he doesn't like to take risks. Neither do insurance companies. That's why, whenever they extend cover to one of their clients, they do buy a credit report on the buyer (that's you) to establish good or bad credit scores. So in this case, they use a tried and trusted local supplier of credit reports but they ask the agency not to disclose their name or the reason they are investigating you, in case this tips you off to give false information. The credit reporting agency conducts thorough research and then calls your company to verify that you are trading and to gain some additional information. They then ask you for financial statements and this makes you angry, because "Who do they think they are to be asking such intrusive questions about my company? It is none of their business!" And you hang up on them.
The credit reporting agency compile a report on your company giving the little information they were able to obtain from official sources and their extensive additional research. But, there is no financial information at all publicly available for companies in your country unless they are listed on the stock exchange, which yours is not, so all the figures they give are estimated. The lack of information leads them to give your company a low score (indicating high risk) and they are unable to recommend high amounts of credit. Certainly not enough to cover this shipment of goods.
In the best case scenario, the export credit insurers are very concerned about this and increase the premium to their customer, who is your supplier. He adds this on to the price of the goods he will send to you and you get upset with him for increasing the price at the last minute - the relationship falls apart, by this time your customer has gone elsewhere.
In the worse case scenario, the export credit insurer refuses to insure the credit amount needed, due to a lack of information and the high risk indicated on the credit report. The supplier won't take the risk of sending the goods without insurance. By the time you find another supplier, your customer has gone elsewhere.
So, what is the moral of this sad story?
- Giving financial statements to a credit reporting agency will help them to build a really useful profile of your company which will lead to a much more accurate credit score. Even the key financial information such as annual revenue and net profits would be really helpful. The more information they have to hand, the lower the risk for the supplier.
Sourced image: LinkedIn
*** The sole purpose of the article above is to generate public discussion, it has no intention to constitute legal advice. ***