Entering the international marketplace for the first time is very exciting. Exporting your products out into the global marketplace is a great way to grow your business, boost your brand and increase your profits. Still, it’s not without its challenges, one of which is making sure your overseas customers pay on time.
When you start trading internationally, there are four main ways your customers can pay. Which one you choose really depends on the individual customers, so review each option carefully, and match them to your customers.
Remember that financial transactions can differ from country to country. Understanding how your target country typically pays for exported goods is essential, as you don’t want to risk causing confusion or upsetting social norms – do your homework on your overseas customers and familiarise yourself with how they do business.
Method 1: Prepayment
This is the most common method and protects you in case goods get lost at sea. It has the lowest level of risk since the customer pays in advance. Some of the ways they can do this are:
- Credit cards
- Online payment
- Wire transfer
Payment in advance means you don’t need to worry about the customer not making payment. It’s a good option for first-time customers you don’t know. Once you’ve established a good relationship with them, you could consider offering them credit terms for future transactions.
Method 2: Letter of credit
This is where your customer pays in advance to their bank. After the goods are received safely, your customer’s bank will pay you for them directly. The trade will only go ahead if the goods are received.
It’s a safe option because it’s offered by the customer’s bank. You can ask your buyer to arrange an export letter of credit advised through your bank. While not guaranteed, this is a safer way to receive payment, provided its terms and conditions are met. With an export letter of credit in place, your overseas buyer’s bank commits to paying you on the buyer’s behalf.
Method 3: Documentary collection
This option means you ship your goods to your overseas customer and the bank holds the shipping documents until your customer pays you.
With this method, both your and your customer’s banks are involved. A set of drafts is sent to your customer’s bank that outlines the conditions of the payment for the shipping document. They can pay the amount directly or on a specific date. As soon as the payment is made, they receive the shipping documents.
Method 4: Online payment
Online payment is by far the best option if you sell via your website, and customers pay using your own payment system or through a third party like PayPal or Stripe. Go for an online payment system that has anti-fraud capabilities to protect against suspicious buyers – it should make sure that the credit card number entered is valid.
Online payments provide proof that you have received the payment and the goods have been delivered. It also protects you from stolen or lost items. Having this payment method will give your business credibility and prove that you have a secure payment option that protects the buyers too.
It’s important to remember that trust is a major factor in attracting new customers, especially overseas. You may start out using payment methods such as letters of credit or pre-payment for a new customer, but once you have established a good relationship with them, offer some flexibility around payments. Showing this kind of trust will help them to become a loyal, returning customer.
Your business is in a great place if you have started exporting. To make the most of the opportunity and really see your profits soar, working out payment options is essential. Decide which would work best for each individual customer and try to strike a balance between reducing the risk of not getting paid against building successful relationships in the global marketplace.