How to make sure your foreign buyers pay you.
Despite trying your best to make the transaction go as smoothly as possible and selecting the safest method for payment, you cannot guarantee that the buyer will pay, but you can still
Minimize the risk of bad debts by choosing a few ways.
- Avoid Discrepant L/C : L/C is One of the safest methods to use for foreign transfer but it can happen that the shipment date might be missed by the buyer or may enter incorrect details on the documents. Because of it the L/C becomes discrepant, which ends up as a no guarantee for the payment.
It’s not unusual for L/C to become Discrepant, but when it happens it brings additional costing as well as delays the entire process.
Here’s what you should do to avoid discrepant of L/C or what to do if you are stuck with one:
- Respect the timeline of shipment.
- Pre-check documentation before submitting.
- If there is an inaccuracy in documentation, try to fix it right away. Also make sure your bank sends the modified file to the issuing bank.
- Have words with the importer to work out an advantageous outcome for both the parties, as the bank is merely a mediator.
- Try and get credit insurance for foreign payment : It is commonly known as export credit insurance ( ECI ) which covers up to 95% for exporters invoice value as well as non-payment which may happens because of below given reasons :
- Political Risk : Trade of the countries may get affected because of war, riots, terrorism, etc.
- Monetary Risk : Buyer may get insolvent or make fault while making payment will result as default payment.
- Other Risk : Currency inconvertibility, expropriation, Change in rules and regulations, etc.
There are private as well as government institutions which offer ECI.
As USA has Exim bank and India has export credit guarantee Corporation of India aka ECGC.
In India ECGC offers various kinds of plans which offer up to 90% coverage. There is SEP (small exporter’s policy) which takes care of firms having turnover of Rs.5 Cr or less. MEP ( Micro Exporter Policy ) is also there which targets firms having turnover of less than a crore.
Considering all factors there are few things ECGC do not covers which you may find below :-
⁃ Loss which happens due to quality issues.
– Exchange rate fluctuations result in loss.
⁃ Buyer not getting successful in obtaining import authority.
⁃ Risk involved because of the nature of goods that are being exported.
- Export Factoring : Export factoring is an alternative of export credit insurance. It is a fast growing business in the world of import and export as it lowers the risk of non-payment and also eases the exporters cash flow. It also helps to attract new buyers , as it offers open account terms.
In Export Factoring the exporter sells their commercial invoice to the financier (who is also known as “factor‘’ ) at a discount. When the invoice is sold 80% to 90% of the invoice amount is given to the exporter by the factor, and when the factory receives the payment from the importer, they release the balance amount to the exporter after deducting their fees and interest. Factoring fees depends upon the buyer’s financial standing also on the type of goods, it may also get affected by political and economic stability of the market.
Here are few most common factoring service offered in the market:
- Resource factoring : The exporter should be taking back the invoice if the factor fails in the collection of payment from the importer, which implies that non-payment risk lies with the exporter and not with the factor.
- Non-recourse Factoring : In non-recourse factoring, the factor takes the risk of non-payment. Well it does not imply that the exporter is free of all risk, it only implies that the exporter is free from those risk only which are specifically mentioned in factoring contract.
- Limited Factoring : In it w portion of total invoice of exporters is bought by the factor and remits payment collected against those invoice. There are few criteria’s over which the factor makes the selection, which are cost considerations, processing, capacity, etc.
The above discussion showed there are thousands of ways a person can try to secure payment. The choice of the correct method of payment for yourself completely depends upon the type of transaction and the risk factors involved in it. Be sure to also consider your buyer. You just need to make sure that there is a balance between yours and their interests.
To Know More
- Import/ Export, cargo mode: Air, sea, and by land.
- Routine shipment, home consumption (duties paid)
- Ex-Bond/In-Bond shipment
- Shipments of DEPB, EPCG, and DFCEC licenses
- 100% EOU / STPI / SEZ / TP for ship spares / R&D certification / passbook scheme
- Import clearance for a project
- Direct deliver perishables and certain cargo
- Re-import after repairs / exhibition
- Clearance of third-country exports
- Clearance of high seas shipments
- ATA carnet clearance
- Second-hand capital goods
- Free-of-charges shipments
- Courier clearance
- Door to door delivery
Legal, Standard and Specific Documents Required
In spite of this, there are some basic legal and standard documents that are needed for most export clearance cases.
which are as follows:
- Commercial Invoice
- Packing list
- KYC Documents Required by The CHA for Custom Clearance.
- GST (LUT)/ IGST declaration
- Export License (If required)
- AD Code on (Bank Letter Head)
- MSME Certificate (If required)
- RCMC/EPC Certificate (If required)
- AA (DEEC)/ DFIA/ EPCG/ EOU License For Export Benefits (incentive) (As an option the Exporter may Choose)
- Any other Documents required to in this Consignment.
Certificates From The Concerned Departments
In relation to the following items you will need to obtain certain certificates from the concern department, which we have provided you below :
- Registration From Food Safety and Standards Authority of India (FSSAI) (For Food/Edible Import Consignments) (if required)
- Plant and Protection Quarantine Certificate/ import permit plus Fumigation treatment Certificate are required for the import of plant material (For seeds, plant and plant thereof) (if required)
- Animal Quarantine Certificate (A&Q) Required import in india (For animal, animal parts, animal feed, etc. ) (if required)
- CDRUG – ADC Assistant Drug Controller(ADC) (is mandatory for the import of drugs/bulk drugs, etc.) (if required)
- SCOMET – Special Chemical organism, material Equipment, Technology.
- PSI – Pre Shipments Inspection. (if required)
- Certificate of origin.
- APEDA – Agriculture and processed food products Export development authority.
- FUMIGATION (if required)
- WILD LIFE (if required)
- Bill of entry (issued by customs only)
- Commercial Invoice
- Airway bill or Bill of Lading
- Certificate of Origin
- Delivery order from shipper/airline and freight forwarder.
- The CHA requires KYC documents for customs clearance.
- License for Import (In case of particular goods)
- Certificate of Insurance (If necessary)
- Letter of Credit or LC
- Technical Write-up or Literature (Only required for specific goods)
- Industrial License (Only required for specific goods)
- Test Report (If any)
- RCMC Registration/Membership Certificate (If required)
- GATT declaration
- License for duty benefits (As an option the importer may choose): AA(DEEC)/ DFIA/ EPCG/ EOU
- And other specific documents for your goods are necessary to import customs clear in importing country.
There are certain certificates that you must obtain from the concerned departments regarding the following items:
- Registration From Food Safety and Standards Authority of India (FSSAI) (For Food/Edible Import Consignments)
- Animal Quarantine Certificate (A&Q) Required import in india (For animal, animal parts, animal feed, etc. )
- Plant and Protection Quarantine Certificate/ import permit plus Fumigation treatment Certificate are required for the import of plant material (For seeds, plant and plant thereof)
- Drug & Cosmetics Act, 1940, No-objection Certificate (NOC) from Assistant Drug Controller(ADC) (is mandatory for the import of drugs/bulk drugs, etc.)
- BIS, Bureau of Indian Standards BIS is responsible for the harmonious development of the activities of standardization, marking and quality certification of goods and for matters connected therewith or incidental thereto
- EPR, Extended Producer’s Responsibility With EPR India authorization, the manufacturer / importer of electronic and electrical products has been given the responsibility to control E-waste by the products after expiry of their lifetime.
- WPC, Wireless Planning & Coordination Imports of radio equipment into India, without prior permission from WPC, will be confiscated by Customs at point of entry.
- LMPC, Legal Metrology & Packaged Commodity Registration For import of any pre-packed commodities commodity to distribute or sell Then he need to apply for packer / manufacturer registration