Webinar : How to get paid on time and in full

Webinar posted by William Barns-Graham, on behalf of Open to Export

In June 2015 Open to Export hosted the ‘How to get paid on time and in full’ webinar with Kevin Shakespeare (Institute of Export) and Andrew McCaughren (HSBC) speaking and answering questions.

The major talking points

The key takeaways from the webinar were the following:

  • Establish what your trade cycle looks like in order to take all the costs of the exporting process into account. Every business transaction has its own cycle and for most exporting deals there will be factors such as shipping, customs and local regulations which can lengthen the process.
  • Try to avoid using cheques as they require a longer clearance time than other payment methods and there is the added risk of the cheque being unpaid. Consider alternatives including international payments between banks, establishing a local bank account, e-commerce sites like PayPal, or using credit or debit card.
  • Assess the credit worthiness of a new buyer through either a credit reference check that determines whether the ‘buyer is good for funds’, through trade references from ‘credible sources’ (ask UKTI or trade associations for assistance), or by getting to know the buyer in person.
  • Consider options like part or staged payments as an alternative to open account. Only offer credit if you trust the buyer, or let them earn it. Advanced payment can be an option where you have a strongly differentiated or bespoke product.
  • Trading in the local currency can give you a competitive advantage as it’s easier for the buyer to trade with you, but make sure you have planned for exchange rate fluctuations.
  • Banks can provide immediate cashflow by purchasing the trade debts in a Receivables Finance arrangement. Typically 85% of the invoice is paid when the invoices are received and the remainder becomes available once the payment is received from the buyer. HSBC provide this service, for example.
  • Know when you are passing on the transportation risk using Incoterms to clarify who is responsible at each stage. FOB (or FCA) are the most commonly used terms, whereby the passing of risk occurs when the goods are loaded onto the ship. Read this overview on cargo insurance for more information.
  • You can read articles with further information and guidance relating to these questions on our Pricing and Getting Paid section.

    You can watch the video of the webinar below, and check out our ‘Recent Webinars’ to access all the Open to Export webinars giving practical guidance and answers to all your exporting concerns.

    Questions and Answers

    As usual, attendees asked some excellent questions to which the two experts gave informative answers. Here are the questions and the answers given to them (with the time they are addressed in brackets):

    Q: How do you deal with currency fluctuations such that you mitigate the risk of the exchange rate swinging in the buyer’s favour? (41:40)

    Manage it proactively. Negotiate at the outset for the right to reprice. Also, consider using a ‘forward foreign exchange contract’ in which a bank will broach you a future exchange rate for when you will in the future receive that money and you can then lock into that rate, irrespective of what actually happens to the currency rate.

    Q: What is the average cost of a letter of credit and how do you factor that cost into your export? (46:40)

    Letters of credit are generally the cheapest option – at HSBC you are charged ⅛ of a % of the sale per month. They just require some admin time to make sure they are filed properly so as to avoid being charged for making amendments later – make sure you do them properly.

    Q: If I have been given a Purchase Order can I get cashflow finance from the bank against it? (53:12)

    Purchase Options are a good starting document, but they are not sufficient by themselves – you’ll need other documents. To have ‘appropriate proof’ you will need other documents which establish a beginning, a middle and an end to the deal. Invoices, transportation documents are also useful without being sufficient by themselves alone.

    Q: Paypal is a decent and simple way for taking payments – but is there a larger cost than necessary using it? (55:12)

    People understand it on a personal and business level – it being easy to use is useful for both the buyer and the seller. Paypal is an established brand and payment mechanism so it is credible. Its usefulness may also depend on your volume of buyers – for transactions with thousands of buyers, online merchant services provided by banks might be more useful.

    Open to Export hold monthly webinars about the different opportunities and challenges involved in exporting. Check out our upcoming webinars page for more details.