Credit Where It Isn't Due: Five Tests for UK Exporters Weighing Payment Terms Abroad

A Manchester speciality chemicals firm wins a distribution agreement in Poland. The buyer asks for 90 days from delivery, citing local practice. The commercial director sees a relationship being built; the finance director sees an unsecured loan to a company nobody in the building has visited.

Both are right. Cross-border credit is a sales tool and a risk position at the same time, and the failure mode is rarely a dramatic fraud. More often it is an ordinary commercial dispute — a quality claim, a change of ownership, a currency squeeze — landing on an invoice that was never properly secured, in a jurisdiction where recovery costs more than the debt.

The five questions below are not a substitute for a credit team. They are the ones that, in the authors' experience of export disputes, most often go unasked until it is too late.

One: who is legally on the hook, and can you prove it?

Trading names, group websites and email signatures are poor evidence of contracting identity. Ask for the registered name, company number, registered office and a recent extract from the local registry. Match it to the entity that will sign the contract, place the order and appear on the remittance.

Then look behind it. Who owns the buyer, and who ultimately controls that owner? Group structures that look solid from a sales deck sometimes place the purchasing entity in a thinly capitalised subsidiary while the assets sit with a parent elsewhere. If the creditworthiness lives at parent level, the guarantee should too.

Red flags accumulate quickly: a buyer who will not provide a registry extract, a mismatch between the invoicing entity and the contracting party, a recent change of directors, or a company incorporated within the last eighteen months asking for terms normally reserved for long-standing accounts. Sanctions and export-control screening belongs at this stage as well, before the relationship exists rather than after.

Two: would your security survive a local court?

Retention of title is the standard comfort of UK suppliers, and it is one of the most frequently misunderstood. In several civil-law jurisdictions, a title clause must meet formal requirements, be registered, or be agreed before delivery; in others it offers little protection once the buyer has resold the goods or processed them into a new product. A clause drafted for English law and pasted into a German or Italian contract may be worth less than the paper it is printed on.

Where the exposure is material, stronger instruments deserve consideration: a parent company guarantee, a standby letter of credit, an advance payment or milestone billing, escrow for project work, or credit insurance that pays on protracted default regardless of the buyer's willingness to negotiate.

Three: which currency, at whose rate, and who absorbs the tax?

An invoice in sterling shifts currency risk to the buyer, who may quietly price that risk back into the deal — or simply pay late while waiting for a better rate. An invoice in the buyer's currency shifts the risk to the seller, which is manageable if it is hedged and quantified and dangerous if it is neither.

Beyond the exchange rate, three clauses deserve scrutiny. Which party bears withholding tax, and does the contract require a gross-up? Who pays for bank charges and correspondent fees in the payment chain? And where local capital controls or FX rationing apply, what is the fallback if the buyer physically cannot remit — a local-currency account, an offset arrangement, or a shorter payment period funded by an export credit agency facility?

Four: who pays for the delay, and who carries the default?

Late payment is a cost, and it should be priced rather than absorbed. Interest clauses are worth little in jurisdictions where the courts will not enforce punitive rates, but they establish intent and support negotiation. More important is the expected loss calculation: probability of default multiplied by exposure, added to the financing cost of the payment terms themselves. A 90-day term at prevailing rates is a measurable subsidy.

Insurance changes the arithmetic. Trade credit cover, or a policy arranged with the support of UK Export Finance, usually comes with conditions on credit limits and reporting that improve discipline as a side effect. The common mistake is buying cover after the first overdue invoice, when the buyer and the limit have already become the problem.

Five: what is your recovery route, and what does it cost?

Assume non-payment and work backwards. Which law governs the contract, which court or tribunal hears the dispute, and will the resulting judgment or award travel? English judgments are enforceable in a limited set of jurisdictions; arbitration awards under the New York Convention travel far more widely. The Hague Choice of Court Convention helps in a number of key markets, but not all.

Then the harder questions. On insolvency, where does an unsecured trade creditor rank, and can recent payments be clawed back? Several European jurisdictions allow administrators to unwind preferences received shortly before insolvency, with longer look-back periods in specific circumstances. Debt collection costs, translated documents and local counsel quickly overwhelm a five-figure claim. Below a certain exposure, the honest answer is that there is no economic recovery route — which is itself a reason to shorten terms or ask for cash in advance.

When to walk away

The disciplined answer is not always a refusal. It is a refusal to extend unsecured terms. Where a buyer will not supply basic corporate information, will not accept any security, insists on exclusive jurisdiction in its own courts with no reciprocal enforcement, and shows no verifiable payment history with other suppliers, the deal is not a credit decision — it is a grant.

Concentration deserves the same treatment. If one overseas buyer represents more than a modest share of a division's turnover, the credit exposure is compounded by the commercial dependency, and the terms should reflect both.

Making it operational

None of this requires a department. A one-page credit file per overseas buyer — registry extract, ownership chart, security held, currency and tax position, insurer's limit, chosen dispute forum — closes most of the gap. Refresh it annually and whenever ownership changes.

Payment terms are a price. Finance teams that treat them as one tend to find that sales teams, presented with a clear cost and a clear alternative, negotiate better than anyone expected.