An important part of an international sale is determining the appropriate payment term: Cash in Advance, Collections, Letters of Credit or Open Account. It can take quite a bit of time and effort to make this decision, but every minute you invest in this decision can mean the difference between money in the bank or writing off bad debt.

Let's take a look at what is typically involved in this decision.

When selling a product domestically, your company probably takes the time and makes the effort to find out about the creditworthiness of the buyer. You might do this by pulling credit reports and checking references. Once armed with the necessary information, you can make an informed decision.

When selling internationally, you need to do the same thing. You need to feel comfortable with the buyer's ability to make payment. So how do you get to that level of comfort when it can be a challenge to check out the creditworthiness of a company located half way around the world?

Locating the information you need to make a good decision may not be as difficult as it first appears:

• Use the Internet to locate a list of credit agencies specializing in international credit reports. It's always a good idea to ask exporters which credit agencies they are using and how satisfied they are with the information.


• The U.S. Export Assistance Centers offer international company profiles on select companies around the world.


• You can also ask the buyer for a list of references in the USA. Contact the references and find out which payment term they use and if they get paid on time.

Sometimes exporters look at the cost of obtaining a credit report and decide it's too expensive. However, you need to look at this as an investment in getting paid rather than an expense.

Now, if you were selling domestically, you'd be ready to select the appropriate payment term. However, when you sell internationally, you must also pay attention to country risk. You need to consider the political and economic conditions in the buyer's country.

A buyer may be very creditworthy but located in a country that is experiencing difficulty. Argentina is a perfect example of this today. A country's central bank or the government could impose internal restrictions that could delay or prevent payment.

So where do you go to get country information?

• Use the Internet and log onto the U.S. Department of Commerce's Export.Gov website and select the country that you are interested in for a report.


• If you still have questions and would like to talk to an actual person, you can call the U.S. Department of Commerce USA Trade Center at 1-800-USA-TRAD[E].


• Contact your international banking trade specialist. Working with their international credit and country specialists, they may be able to provide additional information.

Armed with this knowledge, you are now getting close to choosing a payment term. If the buyer and country risk are acceptable, you may feel comfortable offering a collection term or an open account. Both of these terms require the buyer to be motivated to initiate the payment. However, if either the buyer or country risk is unacceptable, you may need to choose either a letter of credit or cash in advance.

You must also consider a couple of additional factors before deciding on a payment term:

• The amount of the order. Don't forget that the letter of credit is the most expensive payment term; banking costs may be prohibitive for smaller shipments.


• Competitor terms. If your competitor is offering an open account but you want cash in advance, you will have difficulty making the sale.


• Buyer-seller relationship. After a period of time, you may want to either ease up or tighten down the credit terms depending on how the relationship is working-or not working.


• Your capital position. If you need the proceeds from the current sale to start manufacturing goods for future sales, cash in advance may be appropriate. Or you may choose a letter of credit where you can somewhat forecast when payment will be received.

Once you've settled on an appropriate payment term, remember that we live in an ever-changing world. A buyer's creditworthiness and/or the country risk may improve or decline over time. Therefore, you should review all payment terms on an annual basis to ensure that the appropriate terms are being used.

Just remember, the most import aspect of exporting is getting paid!

( linda )17 Jan,2012

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