Selling and buying products in international trade is a difficult issue regarding the validation of contacts.

Trust and verification are the key words when it comes to international trade, parties often lack the same level of trust they might have in domestic transactions. Validate the authenticity of counterparties, their ability to fulfill obligations, and the accuracy of documents (e.g., letters of credit, certificates of origin) is vital.

Technology and digital validation are also possible, the increasing use of electronic contracts and digital signatures raises questions about their acceptance and validity under different legal systems. Blockchain and other technologies are emerging as potential solutions but are not yet universally adopted.

We can trade safely without risking our financial resources or our prestige as a company or professional trader. Trading safely while protecting financial resources and maintaining your professional reputation is crucial in international trade. Here are key strategies to minimize risks:

1. Conduct Thorough Due Diligence

• Verify Business Credentials: Research potential trading partners through official trade registries, chambers of commerce, or international credit-rating agencies like Dun & Bradstreet.
• Check References: Ask for references from other companies that have worked with the trading partner.
• Assess Financial Stability: Request and review financial statements to evaluate the partner’s ability to meet obligations.

2. Use Secure Payment Methods

• Letter of Credit (LC): Use an LC issued by a reputable bank. It ensures payment is made only when specific conditions, like shipment verification, are met.
• Escrow Accounts: Engage a neutral third party to hold funds until both parties meet their obligations.
• Documentary Collection: Use bank intermediaries to handle shipping documents and ensure payment before releasing goods.
• Avoid Advance Payments: Limit upfront payments unless trust and reliability are well established.

3. Draft Robust Contracts

• Legal Precision: Clearly outline responsibilities, obligations, penalties for non-performance, and governing law.
• Include Arbitration Clauses: Specify arbitration as a dispute resolution method to avoid costly litigation.
• Define Terms Clearly: Use standardized terms like Incoterms to clarify who bears the costs and risks at each stage of the transaction.

4. Use Trade Insurance

• Credit Insurance: Protects against buyer default or insolvency.
• Cargo Insurance: Covers damage or loss of goods during transit.
• Political Risk Insurance: Shields against losses due to political instability or government actions in the buyer's country.

5. Leverage Technology for Security

• Blockchain Technology: Use blockchain for secure, transparent, and tamper-proof contract management and payment tracking.
• Trade Management Platforms: Platforms like TradeLens or Bolero enable secure document exchange and transaction tracking.
• Digital Verification: Use tools for real-time verification of counterparties’ credentials and certificates.

6. Build Trust Gradually

• Start Small: Begin with smaller transactions to build trust and experience with new partners.
• Establish Long-Term Relationships: Strong relationships reduce risks associated with fraud or non-performance.
• Meet in Person: If feasible, visit the partner’s facilities or host them at yours.

7. Monitor Regulatory Compliance

• Adhere to Local Laws: Understand and comply with import/export regulations, tariffs, and trade restrictions in both countries.
• Sanctions Screening: Ensure the trading partner is not on any international sanctions list.
• Licensing and Documentation: Verify that all necessary permits and certificates are in order.

8. Engage Professional Support

• Legal Experts: Hire an international trade lawyer to review contracts and provide guidance.
• Freight Forwarders: Use professional forwarders to manage logistics and reduce risks during transit.
• Trade Advisors: Consult export promotion agencies or trade professionals for market-specific advice.

9. Actively Manage Reputation

• Deliver Quality and Honor Commitments: Ensure timely delivery of high-quality goods or services.
• Resolve Disputes Amicably: Handle disputes professionally to protect your reputation.
• Transparent Communication: Maintain open and honest communication with partners to build trust.

10. Prepare for Contingencies

• Risk Assessments: Regularly assess and update risk management strategies.
• Diversify Partners and Markets: Avoid over-reliance on a single partner or region.
• Exit Strategies: Include provisions in contracts for exiting partnerships without legal or financial damage.

Checking credentials when starting international trade activities is essential for reducing risks and establishing trustworthy partnerships. Below are some practical examples of how companies can verify the credentials of potential international trading partners:

1. Use Official Business Registries

• Example: Access government or trade-specific registries to confirm the legitimacy of a partner's business.
  • U.S.: Check with the Secretary of State's office or the U.S. Small Business Administration.
  • Europe: Use the European Business Register (EBR).
  • China: Verify via the National Enterprise Credit Information Publicity System.
  • Global: Platforms like Orbis or World Business Online offer worldwide business verification.

2. Obtain and Validate Tax and Registration Numbers

• Example: Request the company’s Tax Identification Number (TIN) or VAT number and verify it with relevant authorities.
  • In the EU, use the VIES system to check VAT numbers.
  • For other regions, consult local tax authorities or online portal.

  
  

3. Request Business Licenses and Certificates

• Example: Ask for a copy of their trade license, export/import license, or certifications such as ISO standards. Verify these documents with issuing bodies.
  • ISO-certified companies can be verified via the International Organization for Standardization's database.
  • For agricultural products, verify certifications like Fair Trade or GlobalG.A.P.

4. Conduct Background Checks

• Example: Use third-party verification services such as:
  • Dun & Bradstreet: Provides credit reports and company profiles.
  • Experian: Offers business credit checks.
  • Equifax: Assesses business creditworthiness globally.

  
  

5. Reference Checks

• Example: Ask the potential partner for references from other businesses or clients they have worked with.
  • Contact these references to validate their claims of successful transactions and professionalism.

6. Verify Financial Stability

• Example: Request recent audited financial statements or bank references.
  • How: Review financial records for liquidity, solvency, and overall financial health.
  • Engage financial due diligence experts if necessary.
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7. Consult Local Trade Agencies

• Example: Contact trade promotion organizations in the target country for insights into the company’s reputation.
  • U.S.: U.S. Commercial Service.
  • UK: UK Trade & Investment (UKTI).
  • Global: International Chamber of Commerce (ICC) or similar bodies.

8. Cross-Check Online Presence

• Example: Review the company’s website, social media profiles, and professional directories like LinkedIn.
  • Check if the provided contact information matches that on official documents.
  • Look for customer reviews or complaints.
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9. Visit the Partner’s Location

• Example: If feasible, conduct an on-site visit to verify the company’s physical presence, operations, and infrastructure.
  • Use international consultants or embassy trade attachés if visiting in person is not possible.

10. Monitor Trade Blacklists and Sanctions

• Example: Ensure the company is not listed on international blacklists or sanctions databases.
  • OFAC (U.S.): Verify against the Specially Designated Nationals (SDN) list.
  • EU: Check the Consolidated Financial Sanctions List.
  • UN: Consult the UN Security Council sanctions list.

11. Verify Professional Memberships

• Example: Check whether the company is a member of reputable trade associations or industry bodies.
  • Membership in organizations like the International Chamber of Commerce (ICC) or local chambers of commerce can indicate credibility.
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12. Confirm Shipping and Customs History

• Example: Review past import/export activities via customs databases or freight forwarders.
  • Use trade data platforms like Panjiva or ImportGenius to view shipping records and identify trade patterns.

13. Engage a Trade Intermediary

• Example: Use professional trade intermediaries such as global freight forwarders or trade facilitators to conduct checks on your behalf.
  • Companies like DHL Global Forwarding and Maersk offer such services.

14. Check for Dispute History

• Example: Use legal databases to identify if the company has been involved in disputes, lawsuits, or trade-related arbitration.
  • Platforms like LexisNexis or national court records can help with this.