How to Make Sure Your Foreign Buyers Pay You

1. 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.

2. 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.

3. 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.