The manager of the international department of the McAllen Bank learns on the way to work that the ship on which a local exporter shipped some goods has sunk. The manager has received all the documents required in the letter of credit and is ready to pay the exporter for the shipment. Given the news about the ship, the manager now knows that the foreign customer will never receive the goods. Should the manager pay the exporter, or should he withhold payment and notify the overseas customer?
This paper addresses the ever-important issue of being ethical in the business and how to solve a business issue without burning bridges with the customer and the dealer.
The issue described above is a classic case where either of the two options can be costly for the company. Let’s analyze each case in more detail.
The goods that were supposed to be delivered to the customer would not be delivered in either case. However, one option is to pay the exporter for the goods that were supposed to be sent to the customer since all the documentation is complete. If the company decides to pay the exporter, it would lose the money and as well as reputation loss from the customer. The exporter would be happy and might even develop closer business ties with the company for being paid for goods that were sunk with the ship. This would be a case of legal compliance as it is required by law to pay the exporters once the documentation is complete. (Export.gov, a2009)
The other option is to hold the payment for the lost goods and notify the customer. This option may be beneficial for the company in terms of money saved and reputation saved by informing the customer of the mishap. However, under legal bindings, the company is required to pay the exporter when the documentation is prepared and completed. Thus this option may be neglecting the legal obligations however the exporter may have to cover the loss of goods sunk depending on the type of contact. In this case, the exporter would suffer the most and might not work with the bank anymore. (Export.gov, a2009)
As seen above, both the options present their problems and their benefits. However, the decision hangs in the balance depending on one factor not mentioned as yet. This factor is ‘insurance’. If the documentation covers the insurance for the goods on board, then the scenario would become a lot simpler. The bank would get the insurance money of the goods lost on board while the exporter wouldn’t be paid for any logistics since the risk was his and even he might have insurance for his risk. The only thing left to do in such a case would be to inform the customer that their goods were lost on the way, and they will be dispatched once again as the goods are ready. Some extra costs would need to be incurred in such a case for example documentation cost, however, this cost can be allotted to the customer retention cost. (Export.gov, b2009)
However, if the insurance assumption is not taken, then the most correct decision would be to hold off the payment to the exporter and inform the customer that an accident has taken place. In either case, the customer would not be happy and this might sever ties with the company for future contacts.
Ball, D. A., McCulloch, W. H. Jr., Frantz, P. L., Geringer, J. M., & Minor, M. S. (2006). International business: The challenge of global competition (10th ed.). New York: McGraw-Hill.
Export.Gov. (a2009). A basic guide to exporting. Web.
Export.Gov. (b2009). Export Insurance. Web.