Choosing the right payment method when exporting
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.
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.
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.
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.