Back to Trade Basics For Exporters

The way you want to receive payment will often depend on your circumstances. For instance, if you are exporting for the first time to a client you may want to receive your money in advance. Below you will find key information on topics like this - including a discussion on additional expenses that may associated with your export transaction.

• Methods of Payment: The various methods you can use to obtain payment
• More About Costs: Other exporting costs to be aware of

Methods of Payment

When your company buys or sells products in foreign markets, you can use any one, or a combination of, four methods to obtain payment. Let's look at each in turn.

• Advance Payment - An exporter receives payment before shipping goods or performing a service. Alternatively, an exporter may request a percentage of the sale in advance, with the balance settled using another payment method. Best to use when there is customer risk, because the buyer is not known to the seller.
• Open Account Trading - An importer receives the goods or services before being required to make a payment. 30, 60, or 90 day terms are common. Best to use when there is an established trading relationship between the buyer and seller.
• Foreign Collection - Through its own bank, the exporter instructs the overseas bank to obtain payment from the importer in exchange for agreed-upon documents. Best to use, if there is a document of title, a collection provides some constructive control for the seller. For the buyer, there is evidence that the goods have been shipped before payment. More on Foreign Collection.
• Documentary Letters of Credit - Issued by a bank on behalf of an importer, a letter of credit guarantees an exporter payment for goods or services, provided the terms of the credits are met. Best to use, when there is customer credit risk or country political risk, it provides assurance for the seller as well as the buyer. Some governments insist on the use of an LC to pay for imported goods as a way to control foreign exchange. More on Letters of Credit.

More About Costs

While the growth opportunities afforded by trade are impressive, it is important to be aware of the added costs associated with exporting and for instance, you will need to consider shipping costs, insurance, and payment fees - as well as potential travel expenses, legal counsel, and market consultations. Costs vary considerably depending on where you are exporting to (or importing from), and what terms you have negotiated with the buyer (seller).

When the bank acts as an intermediary for your international payments, their fees vary based on much the same criteria - namely, the risk that the bank assumes on your behalf, and the expense of processing a complex transaction.

While issuing or advising a Letter of Credit may carry a standard fee, services such as confirming, accepting and drawing are charged as a percentage based on the risk that the bank assumes. Refer to the sections on types of Letters of Credit to learn more.