Making Tough Decisions In The Global Marketplace

Always have a contingency plan when conducting business internationally, or risk losing a huge payment.
Founder and President, Global TradeSource, Ltd. (GlobeTrade.com)
September 22, 2011

The following is a real scenario that took place with a customer. We allowed our readers to weigh in, and then we shared what we did to resolve the problem.

Scenario

We ship a container of frozen cheesecakes to Malaysia against an irrevocable letter of credit. It isn’t until the container has sailed from the United States coast that we realize the L/C states within its terms and conditions that the goods should have sailed two weeks earlier. This means that the L/C is now void unless we can get an amendment from the customer. This is our first transaction with this customer and we are worried about not getting the amendment, which would mean we have sold over $25,000 (USD) worth of cheesecakes on open account! What should we do?

One reader’s solution

"Put trust in your customer. Call them up. Talk to them. Explain what happened and ask them to make an amendment to the L/ C—fast—indicating that an extra three weeks' allowance in transportation time is needed. In addition, start building a contingency plan in your mind, should your customer prove not as trustworthy as you hope they are—and you should sense this by your telephone conversation with them.”

Our solution

The reader is on track, but we'd push it even further. Protect your own position and your company's by contacting your transportation company at once, even before you make the call to your customer. Nine times out of ten, your transportation company can intervene and hold a shipment at just about any logistical point—except on open water. That’s what we did. Explain what happened, emphasizing that you have a temporary unsecured payment situation, and ask for their help. But be aware that once you put a hold on a shipment, storage charges at a port begin to accumulate.

This can get expensive, especially when you're talking about a refrigerated container—and one that contains cheesecakes! So move quickly. Once you have a "worst case" action plan, then call, e-mail or Skype your customer. Be sure to get an answer from them as to when and how they are going to make the amendment. Hold them responsible. Get an absolute latest date by which this will happen. In our case, we did all of these things and received the L/C amendment (thank goodness).

So what do you do if your customer goes beyond the deadline without making an amendment and your transportation company calls to notify you that storage charges are at $2,000 (USD)? Don't panic. Bringing the goods back to your home port costs money, but you could do just that and absorb the loss, or contact the U.S. Embassy in the country of destination and explain what happened. See if they have a customer for the product (doubtful!) or one who might be in a position to take the product at an attractive price. Check with your transportation company to see what ideas they might have.

So long as you cover your out-of-pocket costs and then some, you're still coming out ahead. Furthermore, maybe the contact that purchases the distressed goods will reorder!

Between the reader’s solution and ours, we see two important—and possibly contradictory—goals: Securing your payment, and establishing a relationship of mutual trust with your new customer. It's a tough call. In any case, consider what factors do lie within your control, and incorporate these into a strategy that will produce the most gratifying outcome.

Founder and President, Global TradeSource, Ltd. (GlobeTrade.com)