The risk of non-payment is a ghost from which everyone in the world of international trade tries to escape. A buyer could fail to pay for the import of goods either because of three possible reasons: lack of liquidity, his/her country does not have the necessary funds, or a financial crisis affecting the buyer directly.
On the other hand, a company that imports may face risks with the imported goods as they might be defective, decomposed or contaminated. Some other smaller mistakes include problems with the volume of goods ordered or their specifications (color, size or model) may not correspond to the order.
Exporters and importers are exposed to risks at different levels and for both the most efficient way to deal with this is to evaluate, with reliable and up-to-date information, the partner company with which the commercial operation will be carried out. This is a process that involves more than only visiting this potential trading partner’s website or becoming familiar with the activity in its country of origin.
At Credit Report we are specialists in providing this kind of complete commercial file so that the managers of a company in any economic sector can make decisions on whether the company on the other side of the world is also reliable.
Therefore, today we want to offer you a list of five key elements to make the evaluation of a new business partner:

1. Company history

Whether it is a multinational company or a small business that is looking to expand its market, every company in the world has a record of past performance.
The reputation they have in their local market, the size of that market, and the size of previous business operations can be good indicators of how a company is performing. These elements will serve as a guide for a credit profile.

2. Ownership structure

Although there are many companies whose Boards of Directors are protected by confidentiality policies, another key to know a company is determining who its leaders are and who shares the ownership of the company.
The distribution of the majority shareholders can serve as a key element in determining the reliability of the commercial guarantees that a given company can offer, applying this in both: regions with small economies such as Central America or in growing economies such as Southeast Asia.

3. Company capital

The next level of knowledge of a company must include its most up-to-date financial structure and capital. The magnitude of the company’s own resources, as opposed to those provided by third parties, is key to understand its debt capacity in the short and medium-term.

4. Payment capacity

This is perhaps the most important financial indicator when dealing with a new client or business partner in distant markets. However, it is the most precious data to assemble the commercial credit files, because it is almost never public or easy to appraise.
The evaluation of a company’s ability to pay is a result obtained by comparing cash flows, the current level of indebtedness, the history of compliance with its financial commitments and the number of times it has requested a restructuring of its credits.
The more detailed valuations also include this company’s risk exposure to market fluctuations, in operational and legal terms.

5. Market Status

A company’s economic performance is never isolated from the conditions prevailing in the market where it operates. Therefore, when analyzing the risks associated with a given company, it is also necessary to consider the fragility or stability of its environment.
For example, it is necessary to ask whether it is a local company or one with representations in several countries in the same region. International organizations are often more exposed to global cycles of recession.
Which economic sector do they belong to? Another example of this case is companies mainly engaged in the world of construction that are also more dependent on such cycles than companies that produce food or medicine.
Analyzing the performance of companies in Latin America that want to import is one of our premium services at Credit Report.
We offer customized solutions and have databases from 190 countries around the world. If you want to make a good decision, we can help you choose the best business partner.