Domestic Credit Policy Blind Spots and International Trade Risk

[0:00] Elizabeth Chamorro:

Okay, a little bit about myself and my company. My name is Elizabeth Chamorro. I’ve been working for Yaskawa, America for 26 years. I started as a credit analyst and worked my way up to being the senior manager. I report to the VP of Finance. Yaskawa is a wholly-owned subsidiary of Yaskawa, Japan. We opened our doors here in the United States in 1967 to the world distributor of the parent company. Now we have three manufacturing facilities in Illinois, Ohio, and Wisconsin. We manufacture our own product. We have about 1000 employees and sales of over $600 million.

That’s a little bit up but the company. What product is it that we manufacture is AC inverters, servile amplifiers, several motors, machine controllers, everything for factory automation. Industries are automotive because we all send the robotics business. We sell the robot arms to the automotive industry, building automation, semiconductors heavily in oil and gas, elevators, just to name a few. Our customer base is composed of distributors, OEMs in service and system groups.

[1:34] Elizabeth Chamorro:

So moving on. Have you ever wondered how your domestic credit policy fair in the international markets? With the raise of hands, do you have a credit policy in your companies? Is it domestic, international or just domestic? Both? Is it integrated or do you have two separate policies? The rest of you do you do business internationally? And you do have credit policy for international? Good.

So I’m not going to tell you anything new. It’s just for the ones that are planning to or maybe you pick up one or two things that you said, “Oh, that might be important to have in the credit policy”. When HighRadius gave me this, what do you think? How can you compare this to international business? I said, Okay. First of all, I don’t know anything about football. All I know is they scored two touchdowns and they get to the other side. And I heard Sashi saying they are there’s a lot of strategies. He loves football because there’s a lot of strategies, a lot of planning, a lot of moves fast. So the way I was looking at it, I said: “Okay, life will be simple in for many years”. For many years, we have been doing business domestically. You know you get to know your customer, you do some of the credit investigations and you ship the product and you collect. But when you are doing business internationally, it’s not like that. It’s like football, right? Where they work in so many strategies, and they think they have it and that they are going to win tonight. But what happens? They face obstacles that perhaps they were not expecting from that team. So what they are doing is that they are fighting, they interfere with the other team because the objective is to get to the other side and score and international business is our objective with so many strategies that we create, and so many investigations we do is to get paid. That’s, that’s what everybody wants. That’s what managing and suspecting.

[3:56] Elizabeth Chamorro:

So, on the agenda for today, we go over the International Risk Evaluation, International Credit Management Development, Action Plan to counter your Credit Policy Blindspots and some of the must-haves in your international credit policy. What I thought when I was developing that when Yaskawa started 26 years ago, we represented America. And we were doing business a little bit through trading partners in Colombia. So we never took the risk. We were doing business in Mexico, we had a distributor, through a trading partner. We didn’t have to take the risk. Everything was handled by them. They got paid and now we got paid. So as the years went by, a lot of our larger customers, especially in the oil industry, or in the semiconductor business, they all are moving and manufacturing their facilities overseas. So now we thought about what to do. Do we have the policy to follow? What do we tell the new salespeople? So it was a little bit cumbersome.

Maybe everybody was doing their own thing. And my manager said, “Well, one of the things that you’ll have to come up with a policy”. And it was also new to me. So the international risk. Rise in International Credit Sales in the Recent Times has increased look at the numbers, in America, it has increased to 50% from 45, Eastern Europe. And as the international credit sales increase, we see the late payments also kind of at the same rate increasing. So with the late payments increasing throughout the globe, 82% of the people that they were interviewing, they’re saying that they have seen an increase in late payments also in recent years. One thing that I wanted to get your attention is a lot of times when we don’t have the proper people or trained people to know. Sometimes we set up the wrong terms. You got to understand what are the terms of that local country or how you are shipping. How do you expect your customers to pay on 30 days when you might take 30 days for the product, depending on where you’re shipping from, together? How they are going to pay you because they don’t even have the paperwork. So when you are responsible for reporting and producing your DSO and do all of that, it’s really not a true measurement at that time, because you didn’t take into account how you’re shipping to that particular country. Maybe terms should be a little bit longer, right? Instead of putting them on 30 and then you’re reporting the customer 30-60 days late.

So it’s always good to keep in mind the terms of the country and if your company is willing to do the extension of terms when they enter those markets. Business on credit cards with major risks, as we said, there’s a lot of things that we need to look at here in the United States. We look at commercial risk and we go through the evaluation of the five C’s that I’m sure everybody’s familiar with. We’re not going to spend time on this but it is- Character, Capacity, Capital, Collateral, Condition. When you do business internationally, and those will be the blind spots for me, there was something new and that I needed to do a lot of research and talk to a lot of people. When you do business outside, overseas, you have to take into account country risk, currency risk, and culture risk. Right now, we’re living in an era where businesses want to look at the world as there are no boundaries, but on the other hand, you have the local governments to make policies based on their own country interests. With globalization, competition is higher than ever before. Each country has its own laws, its own compliance that you have to meet. So it’s an uneven playing field.

[8:19] Elizabeth Chamorro:

When you do an evaluation, while you are assessing control risk, what you need to keep in mind is that countries are interrelated. The country condition affects your customers and the assessment must be systematic- be proactive, look out in the future. The objective should be free of bias, personal bias, and relevance. How relevant is this business in this country? How is the country race that will take in going to affect our business? Is this a country that we want to go into and if we do, what are we going to do about it. And then the culture risk, which I think is a big thing.

A lot of companies when they were first doing business and including my company, were making a lot of mistakes. We said, “Okay, we’re going to expand the business, let’s go outside the United States’ , and what we found is that nobody was trained to do business. All our managers were great managers, great engineers, but they didn’t know how to deal with all the countries with all the people, the cultures if we are going to have a deficit in the language if we are going to offend someone by making facial movements. None of that was taken into account. So there were a lot of various laws in penetrating some of the markets because we didn’t have the right people handling different parts in the world. So if you already have a policy and do business internationally, what do you think is missing from domestic policy? And are you covering those additional three C’s of credit when you do international business? And we touched on this already, it’s the blind spots in the domestic credit policy.

I think, when doing business, it is the country risk, currency risk, and currency risk. There’s a lack of multiple currencies. Is your system able? What are you selling? Are you selling in US dollars? Or are you selling in local currency? Is your system capable of being able to reconcile all of that and receive different currencies? Do you have local banks that you can deposit those currencies? Or are you going to lose those when you do the conversion from let’s say euros, from euros you will be making, right? But if you convert, how much are you going to be losing in that exchange rate when you convert? So those are all the things that we need to take into account when we’re dealing with other currencies. With country risk, also with familiarity to cross country laws and regulations, political and social, economical race and understanding the customer. Here it is easy. I’m selling it to you based on your ability to pay like how financially sound your organization is, but when you deal with all the countries, again, they might depend on their customers in order to pay you. What is that relationship? In my experience, when I travel internationally, usually I go to South America, where we have major distributors. Every time I visit, I visit different customers of theirs because I want to see if they are financially sound too and if they are going to be able to buy. What terms are you offering? If you offer an extended-term, how can I push you to pay me in ‘x’ amount of days?

So, understand everything that is going on. Understand your customer, understand that there’s a lack of credit information out there. So it’s always good to work with a local agent if you have somebody that can help you gather more information, the internet is available, you can pull a lot of information from everywhere, but check if that is true information and if that company really exists. And then and in the culture, there is a lack of cross-cultural understanding, lack of technical aptitude in small companies. They don’t have the technology and if you have SAP and you’re dealing with all the technology from HighRadius, how are you going to adjust your system to deal with another country that has no technology. As I mentioned, the deficit of different languages. It would be hard for the credit department if they were doing business in 5-6 different countries, you’re going to have five people that speak different languages, but at least the basics, you know, or have your documents and we’ll talk about that moving forward.

[13:17] Elizabeth Chamorro:

Okay, so how do we buckle up our domestic credit policy for the global business?
Some of the focus areas that, to me, were developing an international credit policy was the addition of three C’s of credit. So with that in mind, to me, the perfect strategy to fix your domestic credit policy blindspots while you’re developing your global credit policy, or you’re revising. Because once you do a credit policy, I don’t know. And the UK is not steady, it’s not something that I did 10 years ago, and it’s going to be there. You got to make changes, you got to revise that. The idea will be to revise that every year. Sometimes we don’t have time management. If you need approvals, you do it. In my case, I revise our policy. I’m still waiting for the feedback for the last year to see if we are going to replace the old one. So it depends you know and it doesn’t matter how much you push, but if you already have one, I hope you can take something back and say- you know what, this is the part that I’m missing. So what you do is when you try to create or you’re trying to revise or whatever you’re doing with your policy, go through the evaluation process verification and implementation.

Through the evaluation. When you do the evaluation, think of different scoring models. Do you want to use one that fits all? It might, it might not. But it should be flexible. Changing based on the different countries that you deal in business with. So, again, do you want one customer scoring model per region? It all depends. I think it’s very important that you include your salesperson, management, you get to get the buy-in from them in developing your policy from the input from everybody.

Make sure that you align your credit goals with the corporate goals, the credit goals with the corporate goals. And think of how you are going to approach the credit in-country evaluation. One of the things that I think is very important, I can testify to, is that is included in your policy of budget for travel. There are many times, you know who you’re dealing with, you might have some travel customers. I honestly have a really good story. We had this customer as I said, we used to sell through a trader partner. And finally, they said that they needed to go directly to us. After some years, we started doing business with letter credits. And letters of credit are very expensive.

[16:29] Elizabeth Chamorro:

So they invited me. I went with them. This happened maybe in the last 12 years. So one of my first visits to them I said- Okay, this is the paper you have, and we know in some countries you have too many sets of financials. It was funny when I went to Mexico, they said we have one for the banks, we have one for tax purposes. We have one for the wife and one for the lover. So which one do you want to see?

So with that in mind, that was my first time when I started entering credit when I went to Mexico. Then when I went to Colombia, I said, “You know what, I want to go to the banks, I want to visit some other customers”. And just talking to the banks, building that relationship not only with the customer but with the financial institutions, and telling them from the manufacturing points that we trust that customer. They’ve been growing with us and I want to help them and I said that the only way that I can help in extending the line of credit is when they pay me when the invoices are due. The only way that I can help with growth is when they back them up financially. I said we don’t do listing, we don’t do loans, we don’t do anything. So as long as the customer has a line of credit that is available and you have our word that we will never stop shipping product to them as long as they can pay us. But in order for them to pay us, you guys need to give them over whatever amount they had. And you know what, a couple months later they told me that the bank increased the line of credit. And now, the company buys $50 million from us in open terms and every time when I visit every other year with them, every time I go there, they ask us to come and talk to their bank because they were also expanding. I was able to get credit insurance for a company that used to buy $50,000 a year from us to increase to $50 million in open terms. They are never late and we never have any problems collecting from them. And they tap into other industries and they love it. So they see me as a partner in the business. So I get invited sometimes. So they say like, “Liz, you’ve been here for almost two years. When are you coming? We want you to go to visit the banks, we have other institutions that we’re trying to get approvals for lines of credit”.

So make sure you have that in your budget because we just don’t want to spend additional money unless we have to unless the CEO says that we have to go out of the country. So what I did is I put a budget, and I also gave a budget to my boss before the end of the fiscal year and I said, “You know what, these are the customers that will want to visit, these are the countries that we would possibly need to visit”, and it’s part of the budget process. Then you go through the verification part of your developing new policy, make sure the policy takes into account country standards. It is very important to get the buy-in from upper management as I said before.

[20:15] Elizabeth Chamorro:

One of the things that I think won’t hurt you. I know things change overnight. But I think it’s not a bad idea to include the list of sanction countries and customers, even though they change overnight. One can drop another, at least you have the basics, just paying from the internet. We do have an automated system where we will check-in for the countries or the customers that are on the blacklist. It’s automatically done. I think we hire a service to do that. So it’s done in the background every time an application is coming or in a new country that they want it to happen. So to me, it’s a good idea just to have the list in the core of the world that it’s okay to ship to the customer into that country. And again, now one model fits all. Different countries, different political and economic environments, invoice currency. Currency is very volatile. I always encourage upper management to do business in US dollars as much as we can and how we will deal with that.

When you’re going through the implementation, we are ready to implement it. You have to put your wish list together and request to make all the documents easier to read if we have the ability to have documents in different foreign languages. I have collections, my applications, I got the seller correspondence accelerator from HighRadius and I’m able to create my own letters. And some of those letters are in Spanish, some of those letters are in French because we have a subsidiary in Canada. But don’t try to do Google Translate because a lot of times these don’t translate the same way. So be aware of that and maybe hire somebody local or somebody with experience in doing translations. So your documents look professional, not somebody that just went to Google. it’s very important to understand and develop communication strategy based on country standards. Are they okay with a written communication or do they prefer face to face? Be as transparent as possible with a customer.

[23:03] Elizabeth Chamorro:

Action Plan to Counter Credit Policy Blindspots. Again, we touch on this and just briefly, the additional risks that we take in when we do international business again as country, currency, and culture, then recognize what are your blindspots. As we said, you know, the different languages, how do they want it to be communicated? What are the political issues? What are the laws, regulations- global, social, political, economic? And those are all the blind spots to me that I found while developing checking with other professionals and calling my colleagues and saying, “I know you do a lot of international businesses. This is new to us. How can you help me?” The community is always willing to help you. So if you know, they add something missing, recharged to your network and try to get there. I know a lot of people in my network circle that are very very heavily and internationally deal with many countries. So whenever we need something, I know who to call. And I’m sure you guys do the same thing if somebody reaches out to you, we are always willing to help.

And then the measures to cover the blind spots. Before creating the models, talk to your agent in a particular country. I learned the corporate goals and I talk about that with your policies and credit and ask how you involve a country that you go into business with. Have proper knowledge of dos and don’ts of collecting in a specific country before you automate your technology and how you want to do it, what are the strategies for each country, and if you are going to treat everybody the same. And that goes with developing culture and strategy space and terms and Incoterms. Incoterms are very important to see who’s responsible from point of shipment or are they going to take ownership once you ship from the port, over the port or the arrival place. Equal times and international business are very important. You should be familiar with the must-haves in international credit policy.

This is kind of what I was going through my evaluation, my process, inputting in writing. So you know, I saw the exposure of different tax, laws, and regulations; the stakeholders, the differences in culture and language, and different beliefs including personal beliefs in other countries and taking it into account when you’re doing business. You should be sensitive to other people’s beliefs and in how they take information in. You can really destroy your relationship if you don’t know how to deal with the people in those countries. And have exposure to different economic and political environments. Look what’s happening in Iraq and Iran with the breakout of the Coronavirus. The big thing right now is that the Coronavirus is affecting globally. This is not just local. How are your customers going to be able to call you for the product that you already shared? I have one already that I called in, they told me all the banks are closed because of the Chinese New Year and because of the Coronavirus, and their banks are closed for another week. So they were late in paying us the bills. Thank God we received the money when the banks opened. But now what do we do with all the inventory that we can share because the transportation is not there. So it’s always good to know what’s going on in other countries. Be aware of what you can face, go through your international customers and see which ones could potentially be affected by everything that is going on.

[27:42] Elizabeth Chamorro:

Credit terms. What are you going to offer? Be specific when you go into Cash in Advance, when you are going into Letters of Credit, Cash against documents, forfeiting. What are the terms that your company is willing to offer the customer? Collection handling and again, collection calls, letters, initiation time are very important. A lot of countries get offended. And actually the president will write to your management team- How dare you call five days before the invoice is due? In the United States, its standard, you know, it’s more of a customer service call like- Do you have an invoice? Did you get the product? Are you happy? Okay, now where’s my money?

In some countries, you can’t just be that proactive and hire and train the right people. As I said, train your new salespeople. As I mentioned at the beginning, they went through some training, customer service and dealing with these people in continuous credit and collection preparation. It is very important to have these under goals, which is a corporate initiative that will put 40 hours of training in its 10% of the yearly goals. So we make sure that as we expand, we also give them, even though they might not be dealing with the international business. We ensure that they train and they can at least assist a few of you.

Thank you so much.