Getting paid: what you need to know
Lesley Batchelor OBE is an expert on world trade and a passionate champion of UK exporters. She is also the Director General of the Institute of Export & International Trade, the professional membership body representing and supporting the interests of everyone involved in importing, exporting and international trade.
Here she talks about everything you need to know about getting paid internationally from online banking to checking your customer’s credit.
Due to the costs involved in getting paid internationally, it is important to understand how you intend to get paid at the beginning of the sale.
Determine and quote your price
Once you’ve decided on the right price for your goods use it to quote for the sale. Read this article on pricing strategies for tips and advice about how best to do this.
Determine your terms and conditions
It’s best to take advice at this level. The ICC’s model contracts in their web store may help or alternatively speak to your lawyer. You need to ensure that the country in which any dispute is held is compatible with your terms and conditions – ideally with a clause regarding arbitration included which will avoid going straight to litigation if you hit problems.
While in most cases it’s best to work with English law in case of a dispute, in some situations it’s easier to use the local law where you need action to recoup the monies outstanding.
Remember the contract of sale can be amended
If you have quoted a customer, that is your offer. The price forms the consideration so that if the customer accepts the quote, there is a contract.
If, however, the acceptance is claused in some way (such as, “we’ll take the goods but only if X happens” or they change the terms of delivery) then you need to make sure you’re happy with this before you accept/acknowledge the order.
The last piece of correspondence represents the final contract, and therefore binding conditions, of the contract.
Check your bank costs
Find out what your bank charges for a simple BACs transfer using SWIFT (Societe Worldwide Interbank Financial Transactions) and your IBAN (international Bank Account Number). This cost varies across the world – the USA in particular varies a great deal, being broken down by the private banks and individual states regulations and laws but can sit around £50 -75 so it can impact on your price if that is the way you chose to accept payment. European banks tend to charge less.
Check out this article on all the costs you need to include for more information.
How does it take getting paid internationally?
It’s important you find out how long a transfer or a cheque from overseas is likely to take to hit your bank account here. Essentially, you may end up providing an extended credit term on your sale as it can take anywhere from 7 days to 6 weeks to collect the monies depending upon where the issuing bank is. This is the way of international payments.
Checking in with your bank will put you in the picture and help you plan cash flow accordingly. The costs vary with this from around £12.50 – £50.
What about card payments?
This has some great advantages as it automatically converts the currency to your home currency and saves the inconvenience of opening a bank account in another currency.
However, it does mean that your price is subject to the daily fluctuations of the international currency exchange rates. Taking control of this will give you better control of your costs.
Also remember that a credit card will cost between 2 and 6 per cent on your sale. Make sure your margin can withstand that additional cost.
You can read more on Open to Export about methods of payment.
Consider letters of credit
A letter of credit is essentially a guarantee from your bank to cover the total value of the sale. Once agreed, the money is held by the buyer’s bank so that in the event that your buyer is unable to make payment on the purchase, the bank will cover the agreed amount.
This method is very secure and is often used to support larger transactions. It is costly (around £300-500) – sometimes set against the value of the deal – but for a large transaction it also buys you peace of mind.
If you intend to use this method of payment here are a few tips:
- Make sure you talk to your bank first and get a template document to send to your customer to complete.
- Next, make sure that you can do all the steps that the customer and their bank has asked of you in terms of packing, documentation and shipping.
- Next brief your shipping agents about the letter of credit giving them a copy.
- Make sure your staff are aware of the detail that must be used in operating with this banking product and ensure they have the training to do this.
For more details about letters of credit, see our article on Letters of credit explained.
There is also something called a ‘Standby Letter of Credit’ which is less costly and can be a great way of gaining the security of a letter of credit without the detail. Ask your bank how they work.
This webinar on how to get paid on time and in full provides further tips and guidance on the technicalities of getting paid when exporting.