Before they even make their first sales call, exporters must determine the best way to get paid in full by their customers in a timely way. This means defining the terms of payment for international trade.
One of the most important tasks for anyone working in international sales is to keep track of factors that may influence a customer’s ability to pay. There are many reasons a customer in an overseas market might not pay, including political change, an economic shift, the state of their banking relationships, and the business culture in their market. Information about these factors and how they impact customer payment is critical to making the best decisions about payment terms when
Common Methods of International Payment
There is no one payment option that is appropriate for all situations. Although cash in advance offers the lowest level of risk for exporters, many customers engaged in international trade cannot afford to pay in advance or do not want to do so. Even those customers willing to provide payment in advance may not be able to buy as much as they want or need under those terms. As a result, cash-in-advance payment terms can hamper an exporter’s ability to attract and retain customers. In some cases, exporters may lose business to competitors that are willing and able to offer more favorable terms of payment in international trade.
The good news is that there are other payment terms available for international trade. The first step in choosing the right one is to monitor a customer’s ability to pay and any factors that might influence or change that ability.
The second step is to use this information to identify the range of payment terms the company is willing to accept in order to accommodate customer needs. Each payment option has its pros and cons so companies should choose carefully based on the customer’s country, industry, creditworthiness, the length and strength of the relationship, and any other relevant criteria.
The most common methods of payment in international trade include: