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Methods of Payment: Terms, Conditions and Alternative Financing Sources For Export Sales

Methods of Payment: Terms, Conditions and Alternative Financing Sources For Export Sales

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A chapter from Laurel Delaney's book, "Start & Run a Profitable Exporting Business."

©Copyright Laurel Delaney, all rights reserved.
A chapter from Laurel Delaney's book, "Start & Run a Profitable Exporting Business."

©Copyright Laurel Delaney, all rights reserved.

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Published by: Laurel Delaney, President, GlobeTrade.com on May 30, 2007
Copyright:Attribution Non-commercial

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07/10/2013

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Methods of Payment: Terms, Conditions and AlternativeFinancing Sources For Export Sales
By Laurel Delaney 
[The following is a chapter from Laurel’s book, “Start and Run aProfitable Exporting Business” (
I have emphasized over and over that one of the most importantthings to negotiate before closing on an export sale is how paymentwill be made. This chapter outlines several strategies for getting paidin full and on time while minimizing risks. In addition, we offer a brief overview of other ways to finance an export transaction, should youfind yourself unable to work out a standard method of payment.In an early stage of my business, I had been communicatingwith a customer in Germany for several weeks. His company waslarge and established, and had a solid reputation in the food industry.He was very interested in our food offerings and finally placed a U.S.$6,000 order.I had responded to his inquiries with a proforma invoice showingall pertinent data. In addition, I stated that payment was to be madeby a confirmed irrevocable letter of credit opened in favor of GlobalTradesource, Ltd. through our account at First Chicago NBD. A fewdays later, they gave the go-ahead to start producing the order. Iassumed that they had accepted and approved our proforma invoiceand were about to open the L/C as requested.A few more days went by.I scheduled the production of their order. I faxed them again
 
with the production details and an inquiry as to when I would see acopy of their L/C.No response.More days went by.Finally, I started to wonder about the customer. I sent anotherfax asking exactly what was causing the delay on their L/C.They finally replied that they had opened the L/C a week agoand that I should be receiving it any day.I phoned my bank and talked to my key contact in theinternational division. I asked that they keep a special lookout for anL/C coming in from West Germany.Still more days went by.The order was produced. The manufacturer invoiced meimmediately. The balance was due in full 30 days from the invoicedate.My contact at the bank called me up and reported that they hadreceived an L/C with my company name and account number at thetop. They couldn't understand a word of it, though. It was in German.I faxed my customer and asked that they forward an English-language copy of the L/C so we could make sure we were complyingwith the terms and conditions.The customer faxed us another copy of the L/C in German.The inexplicable confusion persisted for several weeks. After wefinally received the L/C in English, we found that a condition had beenincluded in the text which meant that our product could not beconsolidated with other products by the shipper to make up a fullcontainerload. This left us with a wide-open payment risk, since
 
shipping companies don't want to sail with a half-empty cargo hold,and our chances of meeting this condition were slim.We faxed the customer again and asked them to amend the L/C.They responded by saying that we had instructed them on whatto do and they had done it.We tried to tell them nicely that they had erred by including theclause prohibiting consolidated shipments.More time went by.Our manufacturer was calling repeatedly and asking us when wewere going to release the cargo. We didn't want to release it withoutsecured payment from the customer.The customer finally faxed again and requested that we ship"open account."By then, we were exhausted and desperate because we hadproduced goods that were sitting in a plant waiting to be released --and overwhelmed with frustration at having spent several weeks tryingto accommodate our customer with a payment method when whatthey wanted all along was "open account" status.I hope you are sitting down. We shipped "open account." WhatI am going to tell you most emphatically NOT to do -- we did.Four months and 32 faxes later, and even then only with theintervention of our state's agriculture office located in Brussels, wecollected payment.I learned a great deal from this transaction. Agree on the termsof payment in advance, and never, ever sell on open account to abrand new customer. No ifs, ands, or buts. Just don't.

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