When it comes to export, risks, and rewards go hand in hand. As an export seller, export has both rewards and risks, but one of the biggest risks is getting paid (from the seller’s perspective).
It’s not uncommon for an importer to delay or refuse to make payment. They may say that they do not have funds at the time or they have gone bankrupt or maybe the demand for the product has dropped in the country, they might even start a dispute with the exporter.
Out of all of these, the physical distance between buyer and seller as well as the difference between the country’s legal structure makes foreign payments more risky.
No one can provide you with a guaranteed or never-failing way to make the buyer pay, you may choose the way which makes sure to minimize the level of risk but that depends upon these few given below factors: The understanding between the buyer and the seller ( How much you know each other ). Monetary value and volume of the transaction.Recurrence of the order.
Terms of payment the buyer is asking for (as their say is also important).
Here find a few common methods which are used for export payment:
Cash or advance payment :
This method is the least perilous method from the exporter’s point of view, as the transfer of ownership of the goods happens after the receiving of payment. This payment type can be fully or partially advanced. Whereas from the importer’s point of view, it is a highly risky method, as he or she does not get to check the quality of the goods or to insure on-time shipment.
Open Account:
In this method, the buyer or the importer receives the goods before making the payment, which makes it a highly risky option for the exporter. Here buyers agree to a particular credit period (30,60 or 90 days). Only those exporters should choose this method who has implicit trust in their buyers and knows the buyer’s ability to pay. Here sellers can offset the risk of non-payment by using export credit insurance or factoring.
Consignment:
Consignment is more or less the same as an open account. In it, the exporter receives the amount only after the goods have been sold to the end consumer, which makes it the riskiest method. Here the exporter is advised to partner with a reputed foreign distributor or third-party logistic provider and get the necessary insurance to cover minimum non-payment rest.
Documentary Collection:
This is also a safe method where banks act as a mediator. Here the exporter is supposed to hand over the shipment regarding documents to their bank, then the exporter’s bank will send the documents to the importer’s bank after these documents are passed to the importer by the bank against payment. The payment from the importer’s side can happen in two ways, first cash against documents or documents against payment, here the importer makes the payment at the site only.
Another way is cash against acceptance or document against acceptance, in this the input me the payment on a specific later date. A method like this is beneficial to both parties.
Letter of Credit (L/C):
This is a written commitment by the bank ( which is issuing the L/C) to the exporter on behalf of the importer to pay upon sum, given that the exporter submits documents and respects the timelines of the contract. However, it can be a costly method because of bank fees, The buyer and seller can agree to split the amount.
Given below are the few kinds of L/C buyers, the seller can choose to make the transaction more secure by picking the right one:
1.) Confirmed L/C
2.) Irrevocable L/C
3.) Revocable L/C
4.) Sight L/C
5.) Deferred Payment L/C
6.) Red Clause L/C
7.) Green Clause L/C
8.) Standby L/C
Escrow Account:
This is the method where a neutral third party receives payment from the importer and holds it till the time exporters complete the transaction and then release the payment to the exporter. This benefits both the parties and also in dealing with the new clients.
While all of the above-provided methods are excellent, it’s up to you and your client to decide on the most appropriate method.
Our Strength
And this paragraph will describe customs clearance & freight booking as our strengths. To clarify, our team continuously monitors the movement of export and imports until they arrive at the final port. In addition, we offer clearance of import and export consignments by sea, air, and road. Further, we are committed to keeping up with the latest customs policies, regulations, and procedures. Moreover, we are pleased to announce that our company has served you for 25 years in sea import export custom clearance. We can do Govt Departments Registrations Certifications easily.
Here you will know 13 points you need to know about our strengths.
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