No truer word was spoken in international business circles. There is no shortage of customers around the world who would be willing to take your product if you’re prepared to finance it and the majority of those may well never pay you for it; so how do you secure your payment across international borders?
It’s particularly important to understand the payment risk associated with any given transaction. There are a few factors that can amplify or diminish your risk including;
- Your experience in the market – how established are you?
- Your knowledge of the client – are they trustworthy, do they have a good reputation?
- The strength of the legal system in the country you are exporting to – how well does it protect foreign businesses?
Most banks offer instruments to help ensure payment across borders (for a price) and these are especially useful to help both parties in situations where trust has not yet been established. More traditional payment terms are also an option, from full or part payment up-front to an open account; however it all depends on the level of trust between the parties and the nature of the relationship.
If you’re just starting out and you have received a significant order, it is well worth asking your buyer for a letter of credit for the first few orders, but always through a reputable bank. Once you have had a few orders go through successfully you could explore some of the other options including; documentary collection, where you ship your products but can retain a measure of control by retaining some of the original shipping documentation.
Once you’re confident of your relationship with your client and that suitable level of trust has been achieved, you might then extend credit terms – but of course all of this still depends on a range of conditions. Our advice is to know your risks, do as much as you can to reduce them, build long term relationships in the international marketplace and always research thoroughly before you make decisions.
If you have questions about the export process or are thinking of taking your business international, please feel free to send an email to email@example.com or give me a call on 0414 659 359.