Martin Rogers (HSBC), Denise Rowley (Export Finance) and Nawaz Ali (Western Union) talk us through various risks involved getting paid overseas and the documentation you should complete to mitigate against them.
You can watch the video of the webinar below, and check out our Recent Webinars page to access all the Open to Export webinars giving practical guidance and answers to all your exporting concerns.
For any first-time exporter it is important to note that the most secure way to get paid is called the advanced payment, whereas the least secure way is by what is known as an open account. An open account requires to send the goods first and then receive payment; this is has a high level or risk.
Here is a quick summary of various methods:
- Documents against payment – this is where the document that you exchange – the sales contract – will be sent to your bank and then checked with the importer’s bank. It is a secure way of obtaining payment however it requires trust with the importer.
- Documentary credit – using this method is important if you are making something bespoke for a specific importer. However the difference here is that the documents have to tie up word for word and line by line as the bank will check it, but once you’ve got the letter of payment you will have the guarantee of payment.
There are however some risks with these methods and you should be aware of these, or at least know what you need to look out for:
- Country Risk – You need to know if there is political and economical stability and if not what could it mean for exporting and payment.
- Transportation Risk – Checking to see whether there is a risk with the mode of transport that you have picked should be a priority. In addition to this be aware that with all modes of transport there could be shipment delays and payment could be at risk.
- Industry Risk – Is there demand for your product? Is it a seasonal good? Making sure you know the industry and your product is important.
Denise mentioned how it is important to also stay on top of credit management especially when it comes to the customer.
First of all you should assess the country you are exporting your goods to making sure that is is stable and safe.
Secondly it’s important to assess your customer’s risk; for example are they creditworthy? Will they be able to pay you on time? All of these are important questions that a credit checker could help you with.