After the goods leave, you want to make certain you’ll get
paid. You need to be familiar with the payment methods used for export
transactions. They differ from methods used domestically, and some
methods are riskier than others.
Foreign buyers expect to pay only when the goods arrive, or later if possible. Few will be willing to pay in advance.
Letters of Credit (L/Cs) is the most common export payment method.
Letter of Credit
With an L/C, a bank pays you. The bank collects independently from
the importer. An L/C can be at sight (immediate payment upon
presentation of documents) or a time or date L/C (payment to be made at
a specified future date).
Here's a typical L/C scenario:
- The exporter and the importer agree on the terms of a sale.
- The importer applies for the L/C for the amount due from a local
commercial bank. The L/C is normally “irrevocable” to
protect both parties (no changes permitted without the consent of both
the buyer and the seller). The bank typically requires the buyer to put
up collateral to cover the L/C amount. At this point, the buyer’s
bank takes on the obligation to pay you.
- The importer's bank prepares the irrevocable L/C and all instructions concerning the shipment.
- The importer's bank sends the irrevocable L/C to a correspondent
bank in the exporter’s country, requesting
“confirmation”. At this point, the confirming bank accepts
the obligation to pay the exporter.
- The confirming bank sends the exporter a letter of confirmation along with the “confirmed, irrevocable” L/C.
- The exporter reviews and accepts all conditions in the L/C.
- The exporter arranges to deliver the goods to the appropriate exit port or airport.
- When the goods are loaded, the exporter completes the necessary documents.
- The confirming bank checks that documents are in order and sends them to the importer's bank for review.
- The importer gets the documents from his bank and uses them to claim the goods.
- The confirming bank pays the exporter by draft at the time specified.
- Satisfying all the conditions of the L/C terms is crucial. You
should carefully review the L/C and make sure the price and terms are
the same agreed to in price quotes and other documents.
If the L/C terms are not precisely met, the bank might not pay. Also,
the bank will only pay the amount in the L/C, even if higher charges
for shipping, insurance, or other factors are documented.
If the L/C terms can't be met, or it has errors or even misspellings,
you should contact the buyer immediately and ask for an amendment to
the L/C to correct the problem.
To get paid, you must provide documentation showing that the goods were
shipped by the date specified. The freight forwarder can advise about
any unusual conditions that might delay shipment. You must also present
the documents by the date specified. The bankers can advise whether
there’s enough time to meet a presentation deadline. You should
always request that the L/C specify that partial shipments and
transshipment will be allowed. This will avoid unforeseen problems at
the last minute.
Previous - Preparing goods for delivary
Table Of Contents
- Is exporting for you?
- >> What is exporting?
- >> Myths about exporting!
- >> What is the possibility of success?
- >> Do you have the money to export?
- >> Can you handle the "risks" of exporting?
- Developing an "export marketing plan"!
- >> Market Research
- >> Export Market Entry Strategies
- The process of Exporting
- >> Finding over-seas "buyers" and "distributors"
- >> Responding to inquires
- >> Preparing goods for delivery
- >> Getting Paid!