Payment methods

The time has finally come to receive your hard-earned export payment. Clearly, receiving payment is perhaps the most important step in the export process. Without payment, you are likely to fail quite quickly. Exactly how you receive payment will depend on the payment method you have negotiated with the buyer.

There are several different payment methods

As in the domestic market, there are several different ways of receiving payment for goods sold to buyers. Each alternative method of payment has different benefits/drawbacks for both the seller and the buyer, and some are more popular (or common) than others. Generally, the seller (i.e. the exporter) will want to receive payment as quickly as possible, while the buyer (i.e. the importer) will want to delay payment as long as possible. Which ever method of payment that is used will depend on the (a) the bargaining position and (b) the negotiation skills of the importer/exporter.

Bargaining position

By bargaining position, we refer to which of the two parties is more desperate for the transaction to take place. If, for example, the importer urgently requires a replacement turbine for a power station that is currently not operational (and not generating income) because of a damaged turbine, the importer may be happy to pay in advance for the goods. On the other hand, if the seller is keen to break into a particular market in which the importer is already well entrenched, the exporter may be willing to receive payment in 60, 90 or 120 days, just to have the importer taken on the product.

Negotiating skills

Agreeing on a payment method and payment terms is all about the art of negotiating. Some individuals are not very skilled in negotiating contracts and may consequently loose out to a more skilled and determined foreign trading partner. Negotiations will generally cover issues such as product specifications, delivery schedules, price, payment methods and payment terms.