As in the domestic market, there are many
different ways of receiving payment for goods sold to
buyers. The payment method you use may have a significant
effect on the financing you require and the level of risk
to which you are exposed. We will now discuss the most
common payment methods in exporting:
This is an agreement you would really only
enter into with a very good client - one that you trust.
With an open account, you agree to supply the goods to
the importer and, once you have done so, you then invoice
the buyer. Once the buyer receives the invoice he or she
There may be some credit terms associated
with an open account. In other words, you will agree with
the buyer that he/she only needs to pay say 30 days after
receiving your invoice. With an open account, you, as
the exporter, carry all the risk associated with the sale.
You may need to arrange financing yourself to pay for
the credit period, but banks may be reluctant to finance
you solely on the strength of the open account as they
have no guarantee that the importer will pay. Instead
you may have to offer other forms of guarantee.
Payments in advance
This is certainly the most preferred form
of payment from the exporter's point of view. Unfortunately,
importers are seldom willing to pay for goods in advance.
However, if you are in a very strong negotiating position
(for example, you are the only supplier of the goods or
the only company that has stock currently), you may be
able to negotiate payment in advance for all or part of
Alternatively, an understanding importer
may be prepared to pay for part of the contract price
in advance as evidence of goodwill. This provides you
with some security that you will be paid and helps to
fund the cost of your production and shipping. At the
same time, it allows the buyer the opportunity to check
the quality of the goods before parting with the rest
of their money. This will need to be negotiated with the
With payment in advance, you have no risks
and bear none of the financing costs. There is no additional
cost to you beyond the costs involved in any export transaction.
Payment or part payment in advance is typically used for
low value sales to individuals or new customers. Payment
in advance is also common when selling over the Internet.
If you wish to buy a book from Amazon.com, you would by
credit card and only once you have paid, would the books
be dispatched to you. It is a realistic alternative payment
method for small exporters that sell rather unique items
such as art work, and most overseas buyers will be willing
to use this method of payment because the amounts involved
are small (and hence, the risk is small).
For any individual transaction, the
most appropriate method will depend on the level of
risk involved, how strong your negotiating position
is and how the cost of financing compares for you and