There are many ways to sell to customers in North
America. Many years ago because the market in
North America was so big, so new, and so virgin
(if one could say that), foreigners selling into
North America were mystified by its vastness of
opportunities.
When visiting its size, diversity of people, and
market potential for sales overwhelm North America
one. Sellers saw that customers were trading freely
on open account terms without payment guarantees.
Buyers and sellers did business domestically without
payment guarantees. Companies were succeeding
and growing. Years ago the market was small in
comparison to today's market and not so many countries
were involved in producing and exporting to this
market. A seller had to develop the market
and assist buyers to promote their stone. Incentives
were given to the buyers in the form of long-term
payments like 90 days from bill of lading date.
Originally the banks through documents or drafts
handled this. Eventually when customers complained
that these documents did not arrive and delayed
shipments at the ports causing demurrage or charges
for storage that cost the seller and the buyer
money and time, it changed to where the buyer
would receive documents directly. As time went
by, buyers became used to these terms.
Suppliers in order to compete had to sell this
way and out do their rivals by selling with even
longer terms like 120 days or 180 days; even some,
for various reasons, offered consignment terms,
which means the buyer would pay when the goods
were sold and money collected to the Seller.
Well
times have really changed. Sellers or suppliers
are finding that payments are not guaranteed even
within the system in North America. Many distributors,
contractors, or buyers in North America are not
even getting paid themselves by their own customers
and thus can not afford to pay the supplier.
Bankruptcies and terms such as Chapter 11 are
being learned by foreigners when they find out
that the company they sold can not and will not
have to pay the supplier at all. Suppliers are
finding that they do not understand the legal
system or ways of collecting money from their
customers. Some suppliers are now changing their
terms of sales to letters of credit only to find
out that their competitors have not.
Since it is still a buyer's market and hundreds
of suppliers are selling with open account terms,
how does one protect his investment and sell in
North America? Some suppliers are just backing
out and saying to themselves "let us sell South
America or the Far East where buyers pay by letter
of credit or some guarantee payment; and these
buyers are not so demanding on the quality of
the stone." Perhaps that is the answer.
On
recent trips to Spain I have found that many suppliers
have reduced their sales to North America and
are selling all they can to other countries with
some guarantee payments. Also the selection of
stone in Spain is not abundantly available in
first or extra anymore in most marbles. The granite
demand in North America is tremendously low, so
now what to do?
The
answer is simple. Miss working with one of
the largest market potentials in the world or
try working to develop not only the market, but
also your financing in North America. When
North America rebounds suppliers will find that
they will have a hard time rebounding them back
into this market.
To sell in other countries means to know those
markets as well as the government, legal, financial,
and the customs and traditions of doing business.
Every country does business differently. The Japanese
are notorious for being the best in the world
when it comes to studying the market they wish
to enter. All suppliers and countries to compete
in the global market must do the same.
Selling
stone or goods is not just selling the product
but the terms for which they will be paid. Suppliers
are learning alternative ways to meet the market
demands and some of these ways are as follows:
Standby
letters of credit Third Party Sales
Deposits
Joint Ventures
Insurance
Stock in the buyers company
Bank
guarantees Consignment
Personal
guarantees Your own warehousing
Factoring
companies Agent handled warehousing
Loan
agreements Protection on inventory by ICC
These
are some ideas to name a few that might be considered.
Many suppliers are looking and studying new ways
to sell. What is right for you? These are just
examples to be studied by each supplier.
The
simple solution is to sell with a documentary
letter of credit payable with terms of 90 days
or whatever is negotiated. However, if one knows
most buyer in North America, they know this is
not possible in 95% of the times.
An alternate is to ask for a "Standby Letter of
Credit." This is less expensive and can be the
back up guarantee the supplier wants when he sells
on open account. The way this works is that the
buyer is sold on open account terms and will pay
the supplier directly; company to company, in
60 days or whatever is negotiated.
If the supplier does not receive his money within,
for example, 75 days then he can collect 100%
at his bank with the standby letter of credit
assuming it is properly written.
Get
a local or even foreign insurance company to guarantee
the money. This is fine and works in some cases.
The problem is that this can be costly to the
supplier and can cost upwards of 5% or more. Secondly,
it takes much time to get the account established
with insurance companies and in the meantime the
supplier has lost a sale.
When the buyer contest the quality of the goods
sold, it becomes difficult for the insurance company,
Which
in most cases knows nothing of stone, to resolve
this problem. The supplier is in difficulty again.
In some cases, the insurance company will only
guarantee 75% of the payment and again it takes
time to get this paid to the supplier should a
problem occur. Some suppliers are now building
into their price the cost of this insurance, or
asking the buyer to pay half the cost.
Check
closely the credit of your buyers. Banks can get
information as well as credit companies to get
financial reports on the companies you wish to
sell. This is very logical and correct. One should
know very well the company you are going to sell.
This is not a guarantee. Sometimes the reason
a company has money in the bank is that they do
not pay suppliers. One also has to check the commercial
trade and find out how their buyer pays. Some
people check for example D&B, Dunn & Bradstreet
or other such companies.
This is fine but after a while they realize these
reports are really limited and not correct and
clear, especially on international buyers. Again,
however, this still helps suppliers to get a picture
of their buyer. Some suppliers are learning to
get references from their customers and check
out how they are paying their other suppliers.
This too is good and expands the picture on the
client.
Do not expect it to be the best resolve. Having
a history of business buying and payment is always
good and should always be pursued. Many suppliers
depend on local market offices in North America
or agents selling their products to know their
clients. This is good too but not even these people
without the monetary support of the supplier can
do all the above themselves. Business matters
are time consuming and cost money.
Most suppliers do not want to invest any money
or time to know the customers unless it is a simple
sales trip. In this trip they will never really
study the credit of the customers and rarely ask
for this credit information. You become too interested
in the sale.
Some
suppliers are taking the initiative to work and
pay companies in North America to gather information
on the market and the clients. Some governments
are supporting trade bureaus in the countries
to assist them with this information.
More of this should be done and promoted by the
government and the suppliers together. Push your
local trade association to establish with the
banks credit information on buyers and exchange
freely this information.
Other
avenue of selling is to ask the customer to give
a deposit in advance of shipping of 25 to 50%
of the order thus reducing the risk of full payment
being received. Some customers are paying suppliers
CAD or cash against documents and if properly
done this can be a guarantee of payment of sorts.
In most cases it can also be very risqué and no
guarantee at all.
In
some cases, the suppliers are asking for the customer
to supply financial reports and in turn to sign
a paper that says that if the company does not
pay the supplier the owners are personally responsible
for the payment.
This type of added pressure puts the owners in
liability and gives more seriousness to the sell.
In North America a corporation can go bankrupt
and the owner may not be responsible for the payment.
If the owner signs a personal guarantee it is
another matter.
Some
suppliers are asking the buyer to sign special
papers that protect the inventory or stone being
sold. This agreement does not give the ownership
of such goods over to the buyer until the goods
are paid for under ICC (Interstate Commerce Commission)
rulings. This will give some added protection
to the supplier.
Some suppliers are asking that buyers sign loan
agreements as if they were borrowing from a bank
themselves. These loan agreements if locally written
can be very enforceable.
You
may wish to consider using finance companies in
North America to guarantee to the credit such
as factoring companies. These factoring companies
will check the credit and collect the money assuming
there is no dispute over the goods. Others are
using legal means to establish credit and sales
with buyers.
If
you have a good agent you might consider joint
venturing with either the buyer or the agent to
stock goods. This way you become partners and
both parties takes part in the losses but also
in the profit of the sales. By increasing your
profit you can afford to take more risks.
There
are many ways to know your customers. The point
of this article is to open the door or the eyes
of suppliers to know that alternatives are possible
and one should check everything out closely to
know their rights and the way of doing business
in the market place they are going to sell.
In no way are the above ideas complete or final
or the answer to your needs. Suppliers must study
their own financial risks and capabilities and
rewards. As there are many good suppliers who
stand 100% behind the quality and selection of
their production there are many not so good suppliers.
The same applies to buyers.
The point of selling goods is not just to take
orders but to sell the terms of payment, the quality
and service of the supplier, and many other factors
that apply to marketing. Each supplier must gain
knowledge of their own production, costs, and
profit, as well as knowing their competition.
You must also know the customers, the market,
the financial risks, and the rewards.
I hope that this article will encourage all suppliers
to sell more stone in North America and do so
with the knowledge that they must study the way
of getting paid when they can not get a letter
of credit.
