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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