Situation: A German precision engineering firm accepted a €2.1 million order from a new client in the Middle East. The client had an impressive website, a downtown Dubai office, and a purchasing director who responded to emails within the hour. The contract was signed. The equipment was manufactured, shipped, and delivered. The first payment — €700,000, due 30 days after delivery — never arrived.

The client's impressive website was three months old. The downtown office was a serviced address — a mailbox and a receptionist. The purchasing director, it turned out, was the sole director, sole shareholder, and sole employee of a company incorporated six months earlier with minimum share capital.

The engineering firm's credit department had checked the client's trade references. Both references were companies controlled by the same director. This is not an unusual arrangement in jurisdictions where corporate formation is fast, cheap, and lightly regulated. It is, however, the kind of detail that a proper credit investigation would have surfaced before €2.1 million in precision equipment left the warehouse.

Where bad debts actually begin

Bad debts don't begin when an invoice goes unpaid. They begin when a commercial decision is made without adequate intelligence. The order was profitable. The margin was attractive. The sales team was motivated. And somewhere between the handshake and the shipping document, someone decided that the opportunity was too good to slow down for due diligence.

This is the pattern in roughly 70% of the significant bad debt cases we handle: the credit risk was identifiable before the first delivery. The information existed. Nobody looked for it — or the person who should have looked was overruled by the person who wanted the sale.

Five checkpoints that stop the bleeding

Checkpoint 1: The commercial registry tells more than the website. A company's registered capital, incorporation date, director history, and filed accounts reveal its actual financial substance. A company incorporated six months ago with €10,000 in share capital ordering €2.1 million in equipment is not necessarily fraudulent — but it is a credit risk that demands collateral, advance payment, or a letter of credit. The registry data takes fifteen minutes to obtain. The write-off takes fifteen months to process.

Checkpoint 2: Trade references are only useful if they're independent. Requesting references from the client's nominated contacts is standard practice. It's also nearly useless. The client nominates companies they control, companies that owe them favours, or companies too small to verify meaningfully. Effective credit assessment contacts the client's suppliers independently — the ones the client didn't nominate. Their payment experience is the one that matters.

Checkpoint 3: Payment terms should reflect risk, not relationship. Extending Net 60 terms to a new client in an unfamiliar jurisdiction because "that's our standard" is not a credit policy. It's a hope. Payment terms for new accounts should be structured progressively: advance payment or letter of credit for the first order, 30-day terms after the second, extended terms only after a demonstrated payment history. The client who objects to this structure is often the one who would have justified it.

Checkpoint 4: The first late payment is intelligence, not an inconvenience. When a client pays their first invoice seven days late, most companies note it and move on. This is precisely backwards. The first late payment is the earliest and most reliable signal of future default. It should trigger a credit review, not a reminder email. Companies that treat late payments as data rather than noise reduce their bad debt exposure by an order of magnitude.

Checkpoint 5: Jurisdiction matters more than the contract. A contract governed by German law with a German jurisdiction clause is reassuring — until the debtor's only assets are in a country that doesn't recognise German judgments. Before extending credit to an international client, the relevant question isn't "do we have a contract?" It's "if they don't pay, where do we enforce, and what do we enforce against?" If the answer isn't clear, the credit terms should reflect that uncertainty.

The €2.1M case resolution

The German engineering firm engaged us eleven months after the first missed payment. By then, the Dubai entity had been dissolved. The director had relocated to a neighbouring emirate. The equipment — precision instruments worth €1.8 million at replacement cost — had been resold to a third party through a Lebanese intermediary.

Our Dubai team traced the resale proceeds through two corporate layers to a bank account in Bahrain. We obtained a Bahraini court attachment on the account and negotiated a settlement of €1.2 million — 57% of the original claim. A meaningful recovery, but €900,000 less than a fifteen-minute registry check would have prevented.

The arithmetic of prevention

The cost of a comprehensive credit assessment on a new international client — including registry checks, independent reference verification, and jurisdictional enforcement analysis — is typically between €500 and €2,000. The average write-off on our books for a failed international credit relationship is €340,000. The return on prevention is not a percentage. It's a multiple.

If you're extending credit internationally and your current process doesn't include these five checkpoints, the question isn't whether you'll face a significant bad debt. It's when. Brief us for a credit risk assessment framework.