Decide when to get paid for export orders

Last updated 19 March 2019

With business to consumer sales, the buyer will usually pay at the point of sale. If buying online, there is a risk they won’t receive the goods. This is reduced by parcel tracking and consumer rights.

Business to business sales can be more complex. The buyer may expect credit terms which exposes you to the risk of delivering the goods and not getting paid.

Get paid in advance

Asking for payment in advance:

  • is more secure for you
  • passes the risk onto the buyer
  • allows you to manage your cashflow
  • may make you less competitive to the buyer

You should ask for payment in advance if customers:

  • are new
  • have poor credit ratings
  • come from a high-risk country
  • can’t be covered by credit insurance or payment guarantees

Share the risk

There are payment methods that allow you to meet the buyer halfway. Bank charges apply, so these methods are more cost effective for large payments.

A letter of credit is a guarantee of payment from a bank on behalf of the buyer. The bank makes a promise to pay if the buyer can’t.

The money is released when strict terms and conditions are met which usually involves providing:

  • an invoice
  • shipping documents
  • quality assurance documents
  • customs documents

The information and wording in the documents must be consistent. Not meeting the conditions can delay payment.

Bank or documentary collection is when your bank collects payment on your behalf from the buyer’s bank. Payment is released when the buyer’s bank receives certain documents. Payment isn’t guaranteed, but it offers a degree of security for you and the buyer.

For larger contracts, banks can provide a contract bond. This is a guarantee that you’ll complete the work and usually covers contract performance, warranties and maintenance arrangements. Some markets require contract bonds as part of doing business.

Get paid after delivery

Accepting payment after delivery is often called ‘open account’. The buyer pays when they’ve received the delivery or after 30, 60 or 90 days if you have offered credit terms.

This is the most risky payment option.

Before offering terms to a customer you should:

  • credit reference check them through providers like Experian
  • ask them for a bank reference and trade references
  • get to know the buyer and visit their offices and website
  • source information from local Chambers of Commerce or trade associations
  • consider being paid in advance for the first few invoices to build trust
  • think about getting insurance against non-payment

You should think very seriously before offering terms to a first-time buyer.

Offering credit terms can affect your cash flow. Credit terms mean you wait longer between paying to make a product and getting paid for selling it. You may need to raise money through export finance to bridge this gap.