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Export Payments

Export Payments

There are internationally agreed rules called Incoterms that help prevent misunderstandings when exporting to another country. Incoterms set out who is responsible for the transportation costs, insurance, taxes, duties, destinations and the point where the responsibility for the goods are transferred from the seller to the buyer.

Set out your terms. Your terms should be clear to avoid any dispute later on. You will need to provide a written quotation detailing your products, their price and their weight and volume when packed. The quotation should also include any additional costs that you will be charging the customer such as export packaging or labelling. The quotation should also state the delivery terms (Incoterms), estimated shipment and arrival and any payment terms and conditions.

Ensure the export documentation is correct. Shipments held up by poor documentation can add additional expense and lead to a delay in payments.

Insure the shipment of your goods. You can also insure against late and non-payment.

There are various methods of getting paid.

Cash-in-Advance 

- With cash-in-advance payment terms, an exporter can avoid credit risk because payment is received before the ownership of the goods is transferred. For international sales, wire transfers and credit cards are the most commonly used cash-in-advance options available to exporters. However, requiring payment in advance is the least attractive option for the buyer, because it creates unfavourable cash flow. Foreign buyers are also concerned that the goods may not be sent if payment is made in advance. Thus, exporters who insist on this payment method as their sole manner of doing business may lose to competitors who offer more attractive payment terms.

Merchant services 

- There are several large companies that provide merchant services and all charge fees. For example, PayPal is recognised worldwide and charges a fixed fee for each transaction but there are limits on the size of payments you can receive through PayPal.

Letters of Credit 

- Letters of credit are one of the most secure ways of getting paid. A Letter of Credit is a commitment by a bank on behalf of the buyer that payment will be made to the exporter provided that the terms and conditions stated in the Letter of Credit have been met. This is verified through the presentation of all required documents. The buyer establishes and pays for the Letter of Credit with their bank. It protects the seller providing that the seller has confidence in the buyer's bank and it protects the buyer as no payment is made until the goods have been received.

Documentary Collections 

- A documentary collection is a transaction whereby the exporter entrusts the collection of the payment for a sale to its bank. The sellers bank sends the documents required by the buyer to the buyer's bank with instructions to release the documents to the buyer for payment. The buyer transfers the funds in exchange for these documents. Although banks act as facilitators for their clients, Documentary collections offer no verification process and limited recourse in the event of non-payment. However, they are less expensive than Letters of Credit.

Open Account 

- An open account transaction is a sale where the goods are shipped and delivered before payment is due, which in international sales is typically in 30, 60 or 90 days. Obviously, this is one of the most advantageous options to the importer in terms of cash flow and cost, but it is one of the highest risk options for an exporter. When offering open account terms, the exporter can seek extra protection using export credit insurance.

Useful links:

Export for Growth - Local exporting expertise from Business West.

Gov.uk – guidance on export insurance

Department for International Trade – web based information to ensure you get paid

Department for International Trade (South West) – services to help local businesses export

Growth hub providers – help with exporting

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