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You are here:Step 9: Obtaining finances/resources for your exports > Payment method as a means of financing


 

 

Payment method as a means of financing

 

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:


Open account

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 effects payment.

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 the shipment.

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 importer.

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 your customer.

 
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Step 9: more information

 

Step 9: Obtaining finances/resources for your exports
      Bank financing
            .Documentary collections
            .Documentary credits
      dti export incentives
      Payment terms and export financing
      Pricing as a means of financing
      Export receivables
      Foreign currency loans
      Alternative sources of financing

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© Cornelius Bothma

More information on Step 9
Learning to export...
The export process in 21 easy steps
Step 1: Considering exporting
Step 2:Current business viability
Step 3:Export readiness
Step 4:Broad mission statement and initial budget
Step 5:Confirming management's commitment to exports
Step 6: Undertaking an initial SWOT analysis of the firm
Step 7:Selecting and researching potential countries abroad
Step 8: Preparing and implementing your export plan
Step 9: Obtaining financing for your exports
Step 10: Managing your export risk
Step 11: Promoting the firm and its products abroad
Step 12: Negotiating and quoting in exports
Step 13: Revising your export costings and price
Step 14: Obtaining the export order
Step 15: Producing the goods
Step 16: Handling the export logistics
Step 17: Export documentation
Step 18: Providing follow-up support
Step 19: Getting paid
Step 20: Reviewing and improving the export process
Step 21: Export Management
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