foreign trade

For companies large and small, overseas business expansion offers exciting opportunities for new markets and growth. But the added complexities also increase your risks – and add new ones.

Taking the proper precautions can make the difference between keeping your company and losing it.

“There is one cardinal rule,” says Steven Bash, manager of international banking and trade finance for City National Bank. “Know your customers and suppliers.”

That’s not always easy when you’re doing business outside your country’s borders. In-person meetings are less frequent – if possible at all – and getting trustworthy credit information can be more difficult.

Performing a thorough due diligence analysis before transacting business with a foreign company pays off, Bash says, even though it requires more of an investment of your time at the front end. Should a problem arise, you’ll be glad that you have all this in place.

Here’s how to get started.

  1. Build a Dossier on Your Business Partners
  • Train one individual to monitor every relationship and review it at least annually.
  • Create a template that includes details most important to your business:
    • Who owns/controls the company, and who makes the decisions?
    • Where is the business incorporated? If it’s not in the country where it operates, why not?
  • Review references.
    • Contact every reference.
    • Also investigate the references themselves to ensure they’re legitimate (use Google, LexisNexis®, etc.).
  • Try to “connect the dots.” Are the company and the reference “related or affiliated” parties? This is a red flag.
  1. Evaluate Banking Relationships

Ask key questions:

  • Which bank(s) will my payment come from (or where will I remit payment)?
    • Make sure that the bank(s) mentioned operates in that country.
  • What other banks do you work with?
    • Are the banks a good match with the company’s business?

“If you sense that something is amiss, pay attention to your intuition,” says Bash.

  1. Establish Firm Documentation Requirements

Fraud is the No.1 reason that companies (and banks) lose money in international trade transactions. To avoid such losses, pay attention to two critical documentary requirements:

  • Invoicing
  • Country of origin


“Even one false or fraudulent invoice could devastate your bottom line,” says Bash.

Mitigation measures to eliminate loss from bad invoicing will never be infallible. But they will help prevent disputes, nonpayment, mistakes and fraud.

  • Require an acceptance certificate that is attached to the invoice or set of invoices.
  • It should be signed by both the shipper and the receiver.

Country of Origin

For importers or exporters, requiring the right documentation to certify a product’s country of origin can also prevent losses.

 For example,

  • In an imported honey business, you must be able to trace the honey back to where it was harvested when the time comes for FDA inspections at the port of arrival.
  • One U.S. chemical trading company learned an expensive lesson when it purchased finished product from India and it Europe. The Indian producer didn’t disclose that the product contained Iranian raw materials. The chemical trading company had to report this to the U.S. government, which led to significant reporting and scrutiny by the Office of Foreign Assets, as well as hefty fines, penalties and legal costs.
  1. Review Contingency Plans

Vet your suppliers from a business continuity and disaster recovery perspective. If they don’t have their act together, you could be left holding the bag.

Most businesses don’t ask their suppliers the right questions to gain a true picture of how resilient the supplier is.

Instead of “yes or no” questions, ask your partners the following:

  • What impact will a given crisis on your end have on the products and services we receive from you?
  • What are your strategies for responding to the loss of critical resources, such as work force, application systems, and your own third-party vendors?
  • How soon will you be able to resume providing us with what we need?
  • Describe your annual disaster mitigation exercises.
  1. Hedge Against Nonpayment Risks

On average, one in every 10 invoices becomes delinquent, according to Kevin McCann, regional director of risk underwriting and general counsel for Euler Hermes, one of the world’s largest trade credit insurance companies. In 2013, 40,000 companies declared bankruptcy in North America, leaving their creditors holding the bag.

“Until you have cash in the bank, there is always some anxiety about getting paid for your goods or services,” says Bash. “The risk of nonpayment can be mitigated in many ways. Each method carries some financial expense, but many companies would rather be safe than sorry.”

Certainly the costs associated with tracking down late payments or not getting paid at all is far higher than the expense to eliminate or mitigate these risks.

To find out more about how City National’s International Banking Services can help your business, click here.