Payment and international trade
Ensuring that your business is promptly paid for providing goods or services can be difficult enough when operating at home, so when you decide to deal with customers overseas you need to consider how to make the payment process as smooth as possible and agree on methods of payment in advance.
Checking creditworthiness of buyers
If you’re going to be doing a substantial amount of business with an overseas client, it may be worth checking if there are any problems with their credit history. You can ask them to fill out an appropriate trade credit application form. As well as confirming their details, it should record information in respect of references, the amount of the credit limit being requested (if at all) and the acceptance of any related terms and conditions. You can then follow this up by checking that their references stand up. However, some potential clients may object to the formality of a credit check, so it will be up to you to decide whether to take the risk.
Payment restrictions and risks
Certain countries may have restrictions on transferring money abroad or trading with international companies, so you should do some research first to find out if there are any trade barriers before reaching a deal. If you’re exporting services, remember to check the World Trade Organisation’s page which explains the General Agreement on Trade in Services (GATS).
Also bear in mind that currencies can fluctuate substantially, especially in certain countries.
Methods of payment
Some common arrangements when it comes to payment for exports include:
Open account trading
If you have an established relationship with your buyer, you can send an invoice and dispatch the goods at the same time. Obviously this means that you’re more susceptible to non-payment or exchange rate volatility.
Documentary collection with bill of exchange
This type of arrangement means that the exporter does not release the documents necessary to complete delivery of goods until the importer has accepted a bill of exchange for payment at a set future date.
Documentary collection with letters of credit
This is one of the safest ways of dealing with payments when doing international trade. A Letter of Credit from the bank of the importer means that the exporter has additional assurance that they will be paid upon delivery of goods.
Also, consider taking out credit insurance to help cover your risks.
If you’re doing business abroad, Terms and Conditions of Export can minimise disputes regarding payments. A credit application form can also help with reducing the risks. These documents can be downloaded from our Business Documents Folder. Click on the relevant links below for further information.