The world is growing together - business opportunities are growing too!
Many small and medium-sized businesses are discovering foreign business, not only as a short-term solution to spreading its risks, but also as a basis for growth. However, lack of knowledge of foreign legal systems and business partners often keeps them from getting involved abroad. The  German economy has always been closely linked to the global economy. In addition to the markets of the new EU members as well as future members, the new EU neighbouring markets and the opening of previously closed markets like China offer excellent business opportunities for midium-sized companies with reliable credit policies. The same applies for the New Independent States of the former Soviet Union.       Use your opportunities - minimise your risks        Along with its numerous opportunities foreign trade also bears some risks, which can be recognised early on and avoided if you have the right credit management partner. “Other countries, other customs!” This expression especially applies to payment behaviour and legal systems, which even in "geographically close regions" are sometimes considerably different to the familiar native law. Insufficient protection of creditors and defaulting clients are still two of the largest risks in international economic life. The fact that a non-payment has occurred and whether a claim may be asserted depends to a large extent on the preceding form of contract. This is why it is imperative that each new foreign client be subject to a creditworthiness examination in order to assess whether he can fulfil your requirements of an effective business relationship, which also includes his financial solvency. Via a Creditreform credit report the potential client will firstly be clearly identified by its address, legal form, VAT number and authorised representatives. Here it is clarified whether the registered office and the actual business premises are the same, which can be of crucial significance in a legal action, or to which extent the legal form provides for liability. The question which persons may sign contacts to make them legally valid ist of significanse too. Furthermore, detailed information about business activities, the development of company stability and solvency is provided. "Black sheep" and financially unstable companies may be recognised in the initial phase of the costly acquisition of foreign clients and can be avoided who at a later stage may cause bad debt losses. Read further on the next page: Secure business abroad: protect your claims... (c) Copyright 2005, Verband der Vereine Creditreform e.V. / Creditreform International e.V.

	Contracts are essential. Factoring secures short-term liquidity...
Information from credit reports allows you to assess various risks (e.g. structure risk, liquidity risk, mode of payment, etc.) and provides a reliable database for protecting claims in line with the contract. So payment and delivery terms are adapted to the economic situation and the company’s mode of payment in order to keep the remaining risk as low as possible. There are a wide variety of payment terms available to exporters. Examples include prepayments (certainly the most favourable payment term), invoices secured by bank guarantee, letters of credit and bills of exchange. Particularly with new export clients or dealings with remote or "difficult" countries, it is recommended to agree on at least a partial payment of about 20%. Firstly, this will free up some of your budget and secondly, it will test the customer’s willingness to pay and solvability. Delivery abroad on open account or bill of exchange is like an unsecured credit. For your clients this may be the most favourable situation, but it leaves you carrying the whole payment risk. This is why open trade credit should only be used in cases of great trust or well-rehearsed business dealings. In practice however, full prepayment is very rare. Given the financial situation of most companies, especially in the developing and transformation countries, you can assume that during contract negotiations you will be confronted with a request for a term of credit. In such a case, claims may be secured by an irrevocable confirmed letter of credit or export insurance. If payment by letter of credit is agreed upon, the credit terms must be clear and ambiguous and accomplishable for both contracting parties. With this additional security, you can also grant a term of credit to customers who pose a certain element of risk. However, if you don’t want to take any short-term risks at all, you can always sell your foreign receivables to an export factoring company and the original credit transaction will turn into a cash deal. Approximately 10% - 20% of the claim amount is retained by the factoring company until the contract of sale is completed. The fees amount to approx. 2% of the secured claim plus the usual bank charges for advance finance. It is advisable to check in advance whether the cession of claims is generally possible in your customer’s country. When you are wondering whether to accept a foreign order, you should not only take the client but also the client’s country into consideration. Besides the financial risks, there are also political risks concerned with exporting. Financial risks can be reduced by examining solvency, but political risks exist in different regions and your business partner has no influence over these. In general, economically and politically unstable countries are vulnerable. The Euler-Hermes Kreditversicherungs-AG, which awards state-run export insurance coverage for Germany, lists a number of countries which do not belong to the OECD (Organisation for Economic Cooperation and Development). This basically means those countries which do not belong to the EU, EFTA region, USA, Canada, Japan, Australia and New Zealand. When carrying out business dealings with these countries, loans may be secured by national export insurance (www.ausfuhrgewaehrleistungen.de). Agreement on payment terms is also an important part of cross-border business dealings and you should pay absolute attention that “Incoterms” are applicable. These are internationally recognised terms which define the mandatory costs and risks to be carried respectively by the exporter or importer. In order to prevent misunderstandings, you should explicitly refer to the updated version, currently "Incoterms 2000". When delivering abroad, German companies primarily like to rely on the well-established domestic rule of retention of title. However, outside of Germany this rule loses recognition and often it can not be enforced in contract agreements. German law is only applicable as long as the goods are located on German soil. Favourable legislation is very rare, like for example in Latvia, where the buyer has no legal entitlement to the unpaid good when a term of credit has not been granted. Abroad, ownership passes over to the buyer mostly on delivery or mutual consent (signing of the contract). And even when the retention of title is considered in the national jurisdiction, it is nevertheless ineffective in many cases. In Luxembourg for example the legislator provides for it, but it can not be used in a claim against third parties nor in an insolvency case, so it practically has no significance at all. Mentioning the general business terms and conditions is hardly sufficient in any single case. In order to have any chance of recognition, these types of claims must be explicitly agreed upon in the contract of sale!

	Professional foreign debt collection for the recovery of dishonoured receivables
So what is to be done when the contract is already signed and the goods are delivered accordingly, but you are still waiting for the promised receipt of payment? Your own reminders are hampered by unfamiliar legal provisions and inadequate knowledge of the language and in practice reminders from a “distant foreign pen pal” are often not taken seriously. If this is the case you should transfer your receivables as quickly as possible to an international debt collection agency, such as Creditreform International. We work together with a worldwide network of Creditreform companies, partner organisations and lawyers, who are specialised in the recovery of debts in each country. Due to our close proximity to your debtor, obstacles which arise from diverse languages, physical distance and foreign legal systems can be conquered. Bureaucracy and the degree of legal stability in each debtor country will dictate whether problems will arise in the legal enforcement of payment claims. Sometimes even in neighbouring countries there are considerable differences in legal provisions. The success rate in the international recovery of debts is influenced particularly by the following three factors: 1. Identification: Can the debtor be clearly identified at a current address and registered office? In other words, can it be guaranteed that this is not an offshore or letterbox company? 2. Proof of claim: Was the contract signed according to the legal requirements? Do you have a legally valid and signed notice of receipt of the delivered goods? 3. Financial solvency: Is your debtor financially solvent? Besides liquidity and fraud risks, even debtors who are willing to pay may delay due to national currency laws, like for example where it is still the case in Russia and the Eastern Transition countries. Preferably one should always try to recover any outstanding foreign debts out of court. If however, you do not attain a positive outcome from a debt collection case with your debtor, legal action should only be taken if the debtor can be clearly identified and is solvent and the claim can be proved. These questions can easily be clarified by means of a credit report and the relevant contract documents. As is the case in many countries, legal systems can invariably differ. It should be noted whether the national time limits in relation to filing an action and time lapse can be observed. A further critical factor to consider is the cost of legally enforcing a claim abroad. Lawyers’ fees are often regulated differently than at home: In most cases there are no official fee rates, but honoraria are freely set at an hourly rate and have to be paid even in the event of a court victory. Moreover, you must face additional court fees, translation and debt collection costs, which might only be partially claimed even in Western Europe. For this reason you should carefully weigh up the prospects of success and the related costs before initiating legal action. At least in the EU the basic principle applies that an enforceable judgment of a German court is recognised in all other member states. Basically a foreign court only formally examines the judgment, the correct preparation of the preliminary procedural document and the judgment on the accused party, so that it is not necessary to commence the procedure anew. Such a simplified acceptance procedure is only available in countries where a corresponding agreement on recognition and enforcement of court decisions exists. If such an agreement does not exist, it can only be executed according to the regulations in each respective country. Irrespective of a potential client’s solvency assessment, you should always clarify the convention to be applied in the contract before signing with a foreign partner. This may be the UN convention on contracts, to which almost 60 countries belong, including China, France, USA, Scandinavia and Russia, or the convention of a particular country. Via a so-called reference contract, the applicable law and jurisdiction shall be expressly agreed upon, for example German law. In almost all countries worldwide statutory provisions allow contracting partners to enter into contracts amicably.