Checking credit rating of buyers or sellers                                                                                              Home

Updated:Wednesday November 24, 2004                    

 

One of the most important concerns for exporters and importers when they start business outside their country is whether the new partner is reliable in terms of credit standing. The exporter has to check whether the importer is capable of paying for the goods he buys or whether the exporter can actually supply the goods that are ordered.

Usually , exporters will check the credit standing, financial responsibility, mode of payments and reputation of business partners before they start any  transactions. The most common way for credibility research by the exporter is to request the importer's bank to furnish the importer's standing. By quoting the importer's bank reference (usually provided during correspondence), the exporter can request information on the importer's credibility directly from the bank. However the payment record of the buyer with suppliers is only available through credit rating agencies

 

Usually for an initial export order , most  companies request a letter of credit (L/C). It is mistakenly believed that L/C is as good as a  bank guarantee, but is  is simply a payment mechanism requested by an importer  which calls for a payment to be effected from his bank (opening bank)  to a seller/exporter (beneficiary), after all the terms and conditions of the credit have been satisfied. Ensuring proper documentation for a a Letter of credit administration is difficult. In fact, bankers indicate that 70% of all L/C drawings have at least one error .

Banks always promote letters of credit, since they are an excellent source of revenue to the bank generating fees from two places--the buyer and the beneficiary (more details available at http://www.crfonline.org/orc/cro/cro-18.html) . For smaller orders (less than US$5000) it is advisable to consider other payment mechanisms after checking the buyers credit rating since the bank charges can be disproportionately high.

 

Credit rating reports  of a buyer can be specially commissioned or readymade reports from credit rating agencies like Dun & Bradstreet (D&B), Equifax ,FCIB, Graydon and Piguet can be used . Reports on established companies in USA and Canada are readily available. If you have the name, address and/or telephone of your buyer in USA/Canada, you can check whether the company exists in the records of the credit agency. This is usually free. Various kinds of credit rating reports are usually available on payment of a nominal fee. In general, credit rating reports for companies in USA/Canada/Europe are available at a lower cost compared to credit reports of companies from other countries. For example, the credit report from D&B for a small US company  costs approximately US$121, while the credit report of a large Indian or Saudi company will cost approximately US$500.

 

The credit report of a company usually includes verification of the contact details of buyer, turnover, payment history with creditors. Some of these details are compiled from public records like information filed with the registrar of companies, court records. For checking the payment history, the credit rating agency usually contacts the suppliers after taking permission from the buyer.  Credit reports for most publicly listed companies are available with major rating agencies.

However, if your buyer is a small/medium sized company, looking to import for the first time, a credit report may not exist, OR the credit report may not be complete enough to answer your credit worthiness concerns. As a special offer, if your buyer is from Canada and has no credit report or very limited credit information we can arrange to acquire a Credit Agency report from Equifax at a reasonable discount, or arrange for a free report* through our associates in Canada

 Our associates have worked for several decades with one of  the largest and most reputed credit rating agency worldwide. Additionally they can provide a credit recommendation based on their experience, if you choose to purchase a standard report.  Please send an email  or fill our supplier registration form (please mention credit report details requested) , so that we can send you more information

* Subject to buyer agreement

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