Planning an overseas expansion of your business is a complicated and costly process, but it’s one that can provide many benefits. And for many companies in today's global market, it is an unavoidable step on the path to growth.
One significant resource that can help achieve you take that step is your business’s credit score.
A credit score is an essential tool that businesses need to get loans, bank accounts and financial products, such as credit cards. These are necessary for making business transactions - especially when moving to a new country, where you’ll need them to purchase stock, land, new facilities or equipment.
But what happens to your credit score when you want to move to a new country - are you able to use your credit score outside of your origin country? And how do you protect it during a global pandemic? Let’s dive into some key questions.
Does lousy credit follow you overseas?
Once you have decided to expand into a new market, what happens to your credit score? What happens if it is not so great? When you expand overseas, the debt you have accrued in your home country will not follow you, but it will continue to be active.
Lenders will have a difficult time taking legal action against you once you have moved, but it will not be impossible. And they can still find a way to recover the debt you owe them.
Also, keep in mind that if you ever decide to move back or continue to operate in your home country, you will have to deal with your debt to improve your credit score. This may mean court time, or debt collectors securing some of your assets on behalf of lenders to pay off your loans.
If you decide to set up a registered branch of your existing company overseas, it is unlikely that the branch will be able to obtain credit facilities; or at least, it is unlikely that exporters to the branch will be able to obtain insurance cover on their credit to that branch. For this reason, it is often advisable to register a new entity in the overseas location.
Whilst it may be difficult to obtain credit in the beginning, with time, successful business, and proof of trustworthiness, you will be able to build up a good credit score. Ensure you have enough start-up capital to cover all the initial costs so that you can pay suppliers on time in order to do this.
How to Protect Your Credit Score During COVID-19
Whether you have decided to move your business overseas, are in that process, or have cancelled/put on hold your expansion plans, protecting your credit score should remain a priority.
Currently, we are all facing a world pandemic of coronavirus (COVID-19). This virus is causing many people to be anxious and uncertain: not only about their physical health but also their business’s financial health, with credit score (a deciding factor in the company’s future recovery and growth) being an area of significant concern.
Whilst some countries and some credit reference agencies have put in place steps to ensure that the current situation will not affect business credit scores, others have not.
In any case, you would be wise to follow the tips below to ensure that your business credit remains healthy during this uncertain time.
Keep A Close Eye on Your Company Credit Report
Regular observation allows you to identify issues before they can cause damage to your credit score. If you do happen to find any mistakes, take immediate action by contacting the creditor. By promptly reaching out, they may be able to correct the error with minimum effort.
That’s an essential step: because the longer you have a mistake in your credit report, the more complicated it will be to remove it.
Keep Your Payments On Time
Even at a time where many businesses are occupied with damage control amid the spread of the coronavirus, you must try your best to continue making your payments on time. Positive credit history is one of the most important ways to keep a good credit score.
However, if this is impossible for you due to a critical hit to your income, you can still follow our other tips.
Speak with Your Creditors
If your income has taken a massive hit and you don't have an adequate emergency fund, paying your creditors according to a schedule will be tricky. Instead of allowing your bills to pile up, it is advisable to contact your creditors instead, as they may be able to help.
When speaking to your lender, it is best to be as honest as possible about your financial situation. You'll need to be upfront about what you can afford to pay and when you expect to able to return to your regular payment schedule.
Because many businesses are being affected by the COVID-19 pandemic, many creditors are waiving late fees and putting on-hold interest charges. So, make sure to contact your creditor to see how they can help you, as many will be willing to work with you on a solution that’s suitable for both parties such as payments in instalments over an extended time period.
It is very important if you do reach such an agreement to have the terms in writing and to ensure you stick to your side of the deal. This will build trust between you and your suppliers for the future, should you ever need to extend again.
Monitor your Customers
Purchasing company credit reports on your business customers and adding credit monitoring is a good way to stay on top of any changes that may affect your likelihood of being paid by your debtors, and therefore allow you to plan more effectively.
Be honest with Credit Reference Agencies
No-one likes being asked about their business finances, especially in times of a downturn. But it is important for credit reference agencies to be able to build an honest and clear picture of your company when they compile your credit report.
This will help you to build trust with your suppliers and help them to secure credit insurance against any credit they extend to your company.
Being dishonest and inflating figures could lead to them over-extending credit to you, to a point that you are unable to pay it back, and defaulting on payments or achieving well below forecasted figures could also seriously affect your credit score.
Eventually, it does catch up – so openness and honesty are vital if an agency asks for your company profile and/or financial statements.
Even though your credit score starts at zero every time you move to a new country, it is still very crucial that you maintain healthy credit once you’ve built it. Not only because you don't want collectors coming after you, but you'll also want to protect your reputation and the relationships you have made in your home country.
And keep in mind that your credit score may be a deciding factor for foreign companies moving into your home market that are interested in working with you.
If you’re interested in finding out more about your credit score or that of another company, we can help. At Cedar Rose, we offer free credit reports with our packages, and a year’s credit monitoring can be added if required.