Getting paid
Choosing the right payment method when exporting
View transcript for Episode 26 - Choose the right payment methods recording
International bank transfers.
International bank transfers are the most common form of payment for business to business transactions.
Pros include relatively fast and secure bank transactions. And managing and monitoring your account online is usually easy.
However, you’ll have to pay bank fees and it’s not generally suited to consumer transactions.
Credit and debit card payments.
Paying with a credit or debit card or via a service, such as PayPal, are quick and easy transactions. And they’re widely known and trusted by customers.
The cons are that they all charge fees, and there are likely to be limits on the size of payments you can receive. So they're generally used for lower value customer transactions.
Local bank accounts
Local bank accounts are generally used by well established exporters with a physical presence in their market.
The pros include giving you the option of paying in the local currency. And they can help to minimise the effect of exchange rate fluctuations.
The cons include that some countries cap the amount of local currency that can be transferred out of the country.
There’s a possibility of other restrictions and regulatory hurdles for overseas companies.
Manage your risk.
To manage your risk, negotiate terms which will reduce risk of non-payment.
And for larger payments, where added security is required, financial products provided by banks, such as letters of credit can help reduce risk.
Finally, research your specific export market because different countries have different regulations and laws around payments.
What you’ll learn
- the main payment methods and what's involved in each
- which payment method is suited to which type of business
- the importance of risk management and researching markets to payment
Common payment methods
As an exporter you have a choice of several payment methods, whether you’re giving terms of credit or taking payment in advance.
International bank transfers
This is the most common method of payment in export for business to business (B2B), especially for larger transactions. These should operate straightforwardly if you’ve given the buyer the right information, including your international banking number (IBAN).
You’ll find information on international banking services on most bank websites.
Pros
- Transactions are generally quick and secure
- Managing and monitoring your account online is usually simple to do
Cons
- You’ll have to pay fees
- Not generally suited to business to consumer transactions
You’ll find most banks have specialist advisers who are experienced in international transfers and export banking. It’s well worth seeking them out - they’ll advise you on what’s right for your company and how your account will operate.
International trade adviser
Credit and debit card payments with merchant services
Merchant services are card processing facilities that handle electronic card transactions, enabling funds to transfer from a buyer to a seller.
These are usually used in lower value business to customer (B2C) transactions, but may have uses for B2B. For example, you might give your local representative a credit card to make purchases for goods and services for local companies.
Pros
- They’re easy and quick for customers and essential for most B2C transactions
- Merchant services such as Paypal are recognised worldwide and so are likely to be familiar, and trusted, by your customers
Cons
- All charge fees. Some charge a fixed fee for each transaction
- There are likely to be limits on the size of payments you can receive via each service
Local bank accounts
These tend to be used by longer-established exporters with a physical presence in their market. They can also help minimise exchange rate fluctuations, as you'll learn about in Manage exchange rates.
However, establishing one can be challenging. Unless you have good reason, such as paying local salaries or collecting local payments, it may not be the best option if you’re a new exporter.
Pros
- Gives the option of being paid in the local currency
- You can avoid losing money to currency rate changes by transferring money to your UK bank account when rates are in your favour, or by buying things in the local currency
Cons
- Restrictions and regulatory hurdles for overseas companies may apply
- Some countries cap the amount of local currency that can be transferred out of the country
Manage your risk
You can negotiate payment terms which will reduce risk of non payment – for example getting buyers to pay in advance if they’re new to you.
You should generally avoid taking payment by cheque - they take time to clear, can be cancelled or may bounce.
For larger payments or where the buyer and seller need more security, there are financial products provided by banks, such as letters of credit, which can reduce or remove risk. You can learn more about this in Decide when to get paid.
Research country-specific differences
Different countries have different regulations and laws around payments and currency. You may find your preferred method of payment won’t be possible, so research your target country before you start exporting.
For example, ‘open account’ (where the goods are shipped and delivered before payment is due) is not allowed in India, and you may be expected to accept payment by cheque by customers in the United States.
Some countries have strict rules about local currency and bank accounts. Others require specific paperwork or additional information on commercial invoices.
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