To protect against international non-payment: check the client's creditworthiness before extending terms, write contracts with jurisdiction clauses and late payment provisions, secure payment through Letters of Credit or trade credit insurance for high-risk markets, monitor payment behaviour for early warning signs, and act within 45 days of the first missed payment. The cheapest debt to collect is the one that never goes overdue.
You're about to sign a contract with a company in a country you've never done business in. The order is large. The client is enthusiastic. The margin is good. And somewhere in the back of your mind, a voice is asking: "What if they don't pay?" Most companies ignore that voice until the invoice is 90 days overdue. Here's how to listen to it before the contract is signed — and structure the deal so non-payment is unlikely, and collection is straightforward if it happens.
What are the 5 layers of international payment protection?
Layer 1: Credit check before extending terms. Never extend credit to an international client without checking their financial position. Sources: Allianz Trade (formerly Euler Hermes) credit reports, Coface country risk assessments, Dun & Bradstreet international reports, and local commercial registries in the client's jurisdiction. A €200 credit report can prevent a €200,000 bad debt.
Layer 2: Contract terms that enable collection. Your contract must include: an exclusive jurisdiction clause (choose your preferred court), payment terms with late payment interest, retention of title clause, and a clause permitting third-party collection with costs borne by the debtor. These aren't legal niceties — they're the tools your collection agency or lawyer will use if the client doesn't pay.
Layer 3: Payment security for high-risk markets. For first-time clients in jurisdictions with weak enforcement (certain parts of Africa, Central Asia, some South American markets), consider: confirmed Letter of Credit (irrevocable, confirmed by your bank), advance payment for the first order, or trade credit insurance through Allianz Trade, Coface, or Atradius. The cost of credit insurance is typically 0.1-0.5% of the insured turnover — significantly less than a single bad debt.
Layer 4: Continuous monitoring. Don't check credit once and forget. Set up quarterly monitoring of key clients: payment pattern trends (are they paying slower?), financial filing changes, director departures, industry sector stress. Early warning triggers should be defined in advance: "if client's average payment time exceeds terms by more than 15 days, flag for review."
Layer 5: Early action protocol. Define in advance: at 30 days overdue, formal reminder. At 45 days, finance department escalation with contractual interest notification. At 60 days, engage professional collection. These triggers should be automatic, not discretionary. The single biggest predictor of collection success is speed of action.
How do I check if a foreign company is creditworthy?
Three sources, in order of reliability.
Commercial registry in their jurisdiction. Company status, registered capital, director information, filing history. Free or low-cost in most EU countries (Companies House UK, Handelsregister Germany, KBO/BCE Belgium). Less accessible in some Middle Eastern and Asian jurisdictions.
International credit reports. Allianz Trade, Coface, and Dun & Bradstreet provide credit assessments for companies in 160+ countries. These reports include payment behaviour data, financial strength ratings, and maximum recommended credit exposure. Cost: €50-€300 per report. Worth every cent.
Your own sales intelligence. How long have they been in business? Do they have other international suppliers? What do those suppliers say? Are they growing or contracting? A 10-minute conversation with your sales team about the client's behaviour during negotiations can reveal more than a credit report.
Should I use a Letter of Credit?
For transactions over €50,000 with first-time clients in medium-to-high-risk markets: strongly consider it. A confirmed, irrevocable Letter of Credit means your bank guarantees payment upon presentation of conforming documents. The cost (typically 1-3% of the transaction value) is insurance against non-payment.
For established clients in low-risk markets: a Letter of Credit is overkill. Strong contract terms with professional collection as a backstop provide adequate protection at lower cost.
For ongoing relationships with moderate risk: trade credit insurance provides continuous coverage without the administrative burden of opening an LC for every shipment.
The companies that rarely need collection services are the ones that built protection into every deal from the start. Prevention is cheaper than recovery. But if prevention fails, early action is the next best thing.
Contact us for a free review of your international credit exposure. We'll identify where you're protected and where you're exposed.