Getting
Paid
One of
the major attractions of dealing through domestic export houses
or buying agents in one's own country is the relative certainty
of being paid promptly, and in sterling. Extended credit is
not usually encountered. Exporting direct on the other hand
brings certain problems, mainly of ensuring payment and avoiding
risks incurred from fluctuating currency exchange rates. It
is no secret that some countries have a reputation for speedy
payment, whilst others prove quite the opposite. Advice in
this respect is available from the following section of the
Department of Trade and Industry: Export Credit Guarantee
Department, Export House, 50 Ludgate Hill, London, EC4M 7AY
The normal
procedure with a new customer to whom one exports, is to use
either Letters of Credit or other documentary collection handled
and co-ordinated by banks. If you plan to offer credit, you
should take up references in the same manner as would be the
case for a new UK customer.
Amongst
the many methods of payment for which the exporter might
opt are the following:
- Cash
With Order - Before Delivery. This is of course a normal
business requirement for firms operating in domestic markets.
You might not actually get payment in advance and some other
method might be requested by the importer. But, you can
always ask!
- Open
Account - A large percentage of transactions take place
on open account, where invoices are provided, goods delivered,
and payments made by bank transfer. This is ideally a form
of payment used when a certain level of trust has been established
between parties to the transaction.
- Bills
of Exchange - This is a document that enables the exporter
to provide a period of credit to the importer, usually sufficient
to have goods shipped, collected, and possibly sold before
payment is made through the importer's bank. A 'sight' draft
is one
that must be paid before title passes in the goods concerned.
A 'term' draft on the other hand allows for payment some
time after received, usually in multiples of 30 days. Term
drafts are normally extended only to known clients of good
financial standing. The main benefit of term drafts is one
of the customer being able to sell goods well in advance
of payment. In EEC countries, some banks will avalise (guarantee)
payment by their customers of bills of exchange. Normally,
because the exporter is agreeing
to some delay in receiving payment, a reasonable amount
of interest will be included.
- Documentary
Letters of Credit - This comprises an irrevocable letter
of credit, raised by the importer upon instructions to his
or her bank. The bank opens a credit in favour of the exporter
in which very precise conditions are laid out in respect
of supporting documents, methods of despatch, details of
the goods, and so on. Both parties' banks confirm the agreement
and payment is guaranteed. One problem with regard to documentary
letters of credit is the amount of paperwork known to accompany
the transaction - commercial invoices, certificates of origin,
shipping documents, customs declarations, bills of lading
and so on are all required often with multiple copies of
all documents. Others form of documentary letter of credit
exist. The most desirable is the irrevocable letter of credit,
given that payment is guaranteed in all circumstances, including
those of revolution, currency crash, insolvency, and Act
of God.
- Factoring
- Becoming increasingly more popular this method is one
of dealing with an international factoring company which
will handle all collections on behalf of the exporter and
provide credits in sterling. Usually factoring companies
are backed by major banks. Information on appropriate factoring
companies can be obtained through your bank or upon request
from: The Association of British Factors, 24-28 Bloomsbury
Way, London, WC1A 2PX 071 831 4268
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