Tips for a smooth passage to India

India's booming economy make it a tempting destination for export deals, but make sure you take the right precautions, says Simon Groves

UK exporters with their eyes on India’s booming economy need to proceed with caution. India’s economy continues to grow at about eight per cent a year, fired by a burgeoning services sector that contributes three-quarters of the nation’s economic growth. But although money continues to flood in, India is facing significant inflation – reaching 7.3 per cent year on year last October.

In addition, the government is still struggling to implement economic reforms, bring in much-needed infrastructure projects and manage costly subsidy systems.

These pressures highlight the importance of checking carefully the creditworthiness of trading partners in India. All too often UK firms chasing export deals forget to apply the same checks and measures that they would use for domestic customers. The basic principles are the same, but they need to be adapted.

Credit check. It is especially vital to check if a potential customer is under the supervision of the Board for Industrial and Financial Reconstruction. This means it is protected from bankruptcy, making it virtually impossible to reclaim a bad debt.

Payment terms. These must be in writing and agreed to by your customer before any transaction begins. Indian importers expect open account terms, but if there are concerns, exporters might try to opt for advanced payment or Cash Against Documents.

Getting paid. Slow payments are not excessive, but do not extend credit terms beyond 180 days as this will result in the Reserve Bank of India getting involved, delaying payment even further.

Late payment. Recovery of overdue payments through the legal system is slow, so out-of-court settlements are preferred. UK firms need a collection agency with local experience.

Legal action. If firms do have to go to court, be prepared to wait. Debt recovery takes on average 1,420 days, four times as long as in the UK, while bankruptcy proceedings take a staggering 10 years on average, compared with less than 18 months in the UK.