Risk and reward are the opposite sides of the same coin.
The global economy offers great opportunities, but the realities of conducting transactions offshore – different business practices, foreign banks, language barriers, political uncertainty and currency fluctuations, to name a few – can be intimidating.
The owner of a Pittsburgh-based medical components company had all this to consider and more, as he reviewed the order from the European hospital supply firm.
“We had met one of their reps at a trade show in New York earlier that year,” said the owner. “They liked a few of our products, and they seemed to have pretty good sales and distribution arrangements in Italy, Germany and France. They had a strong Internet presence and an impressive catalog. But when this order came in – it was for about $160,000 in product, with a request for us to deliver the entire shipment on just a 50% deposit, net 30 days on the balance – we were forced to consider what the downside might be.”
But whatever the possible downside, this was a huge order by the company’s standards. And the chance to establish a presence in the European marketplace was too potentially lucrative to ignore.
Business Risk Assessment
The European company had a fairly good track record. “We really just called some of the other companies who had products in their catalog,” said the owner. “No one had any serious complaints. We did pick up sort of a feeling that they had strung along a few companies on payments, but that’s not unusual in medical supplies.”
The owner’s primary concerns were:
- The possibility of a late payment. On this size order, the company could maybe go 40 or 45 days before receiving payment, but not 60. And certainly not 80 or 90.
- Economic conditions. Europe was still feeling the impact of financial problems in Greece and Spain, both across borders and across industries. More bad news could easily impact the customer’s client hospitals, making it harder for the owner and his company to collect on the receivables. Plus, healthcare providers were notoriously slow payers.
- Currency fluctuations. Although the contract specified that the customer was to make payment in U.S. dollars, even a slight devaluation of the Euro would make dollars more expensive and – by extension – make it costlier for European companies to make their payments to U.S. suppliers.
The MP Star Financial Action: Their own business risk assessment
The owner’s accountant referred him to MP Star Financial, hoping that there might be a way to accept the order, but also manage some of the risks involved.
MP Star went through a risk assessment process, and was able to determine that the potential customer in Europe had reasonably good credit, as well as a strong reputation in the medical supply field. There was little doubt that the invoice would be paid and that the product would be sold.
With that information, MP Star arranged to factor the remaining the invoices (on the balance owed) as soon as the products were received by the customer. This gave the company immediate access to most of the outstanding receivables, and also took the bulk of the risk out of the arrangement.
The MP Star Edge: A global invoice factoring partnership
To make sure the transaction ran smoothly, MP Star partnered with a European factoring company – one with whom MP Star had previously worked. The local presence provided by the partnership was invaluable in addressing logistics, language and currency issues, and kept the arrangement on schedule.
MP Star’s invoice factoring plan allowed the company to fill the foreign order and get paid in a timely fashion. Today, the European hospital supplier remains one of the company’s best customers.
MP Star was very helpful,” said the owner. “That first international transaction literally would not have happened without their help. I liked that they didn’t take a ‘one-size-fits-all’ approach. Our situation was different, but they worked hard to find a way to get it done.”
The company continues to use factoring to fund and manage many of its international sales. Business is very good. The company now has a sales office in London and several distributor relationships throughout Europe.
For more MP Star Financial invoice factoring case studies:
Are cash flow concerns keeping you from closing a deal? Do you need to go through a business risk assessment process of your own? MP Star Financial can help. Call (800) 833-3765, extension 150 to discuss invoice factoring today.