Investigations of Foreign Companies
Even when Japanese companies conclude a contract with each other, if it is the first time to do business with a counterparty, it is usual to investigate what kind of company the counterparty is by obtaining the results of a credit research agency survey, researching on the Internet, ordering a certified copy of the commercial register from the Legal Affairs Bureau, or hearing rumors from business partners. If such investigation is insufficient, it is possible that the other party is a totally unreliable company, which may make it impossible to collect accounts receivable due to bankruptcy, or in some cases, the other party may become a victim of a takeover scam. When conducting international transactions, it is even more necessary to investigate the counterparty. When a Japanese company does business with a foreign counterparty for the first time, it is common for the company to investigate the nature of the counterparty by obtaining introductions from local consultants or business partners, or by talking with the counterparty’s representatives over a meal or drink. In some cases, it is also important to conduct a factory tour and talk with the other party’s executives and employees.
In Japan, there are well-known research institutions such as Teikoku Databank, but internationally there are also research companies such as Danreport, so it is possible to obtain information such as financial information and transaction history from such research companies. Recently, companies specializing in investigations of foreigners and foreign companies have emerged, as stock exchange regulations require that the identity of foreign investors be clarified and that it be proven that they do not constitute an anti-company.
Investigations of Registered Information
Usually, a company is registered in the place of incorporation. It is also beneficial to obtain registration information through a local attorney. In the U.S., the registration information of the Secretary of State is available to anyone. In the UK, company registration information is also available on the Internet, and information on dissolutions, etc., can be obtained from the courts. In many cases, obtaining this information is done through local offices with which we have relationships.
However, except in the case of a world-renowned company, the availability of information that would allow one to be confident about the creditworthiness of the counterparty is rather vague. It is extremely risky to start a transaction without conducting sufficient research on the creditworthiness of the counterparty just because international transactions are risky. There is also the question of whether it can be said that the other party is really an employee of Company A just because the other party handed over Company A’s business card and the meeting was held in a conference room in an office with Company A’s nameplate. In fact, there have been many cases where people have become victims of fraud by handing over business cards of different people or using the company’s business card of someone who is not an employee of the company.
Consideration of Contracting Parties
Thus, it is extremely important to confirm the other party’s identity at the start of a transaction. If it is not possible to check the creditworthiness of the counterparty, the next best solution is to have another company enter into the transaction with the counterparty and conduct the transaction with that company. For example, if you intend to do business with Company A overseas, but are unsure of Company A’s financial position, you could sell products to Company X (a subsidiary of a Japanese corporation) located locally, and have Company X sell the products to Company A.
Principle of Concurrent Performance
In addition, while many transactions between Japanese companies are closed at the end of the month and paid at the end of the following month, care must be taken in transactions with foreign companies. First of all, the payment at the end of the month means that the counterparty has to wait for the payment during that period (up to 60 days), which gives the counterparty a credit. However, there is a possibility that the other party will go bankrupt during that period, or that a dispute will arise and the other party will not pay. In addition, giving credit means giving the other party an advantage in negotiations (e.g., the other party may not be able to negotiate forcefully because it is not sure whether or not it will pay the price), which is extremely dangerous. In transactions with foreign companies, simultaneous performance is the general rule, so when goods are delivered, payment must be received at the same time. In the case of trade, simultaneous performance is difficult, but in such cases, it is possible to receive a Letter of Credit (LC) issued by a reputable financial institution in the other party’s location.