Reference no: EM132727175

Lami Cosmetics, a small manufacturer of boutique soaps, was excited for the opportunity to attract the attention of a large retailer in the United Kingdom. Agreeing to supply this retailer, however, would mean that the company would have to dedicate more than half of its production capacity to this client. Being a large and well-known company, the buyer insisted on an open account payment arrangement. The payment term was 90 days from the shipment date. Due to the size of the company, the exporter did not doubt the retailer's ability to pay, and agreed to the terms.

• Four months later, Lami Cosmetics has shipped 3 shipments to the United Kingdom, but has not yet received payment for the first shipment because of a minor dispute raised by the buyer with regards to the precise contents of the invoice. In fact, the buyer's policy towards its suppliers is that payments are always withheld in the event of a dispute, irrespective of its actual nature. This has dragged on for the past 120 days. As a result, Lami Cosmetics has had to suspend shipments until the issues have been resolved, and faces insolvency if it does not receive payment very soon. To make matters worse, the large retailer is threatening a lawsuit of its own because of the suspension of the shipments, as it had planned and invested in a national launch of a new product range.

• Lami Cosmetics had not made any arrangements to secure payments and thus needs to resolve the issue directly with the buyer, and/or consider litigation in a foreign country.

Problem 1: What Lessons you learn from this Tale?