Volume 35, Number 7, July 2000
You Pay Now!
a few pointers for wrapping up international sales
by Rene Bergero
Several years ago while on a trip through the Orient, my dinner companions and I were enjoying a delightful evening of fine dining. We were settling in for some spirited conversation over dessert when our waitress, who up to this point had been a model of discretion, suddenly burst upon us. In a very forceful manner she indicated our tenure at this establishment was at an end by exclaiming you pay now! and thrusting the bill onto my plate. After the initial surprise, I countered and told her we first wanted to finish our desserts and then maybe have a little tea. We went back and forth between paying and leaving and staying and eating until we achieved a negotiated agreement. Looking back on this event brings to mind an important reality of international sales: what you pay for something is sometimes not as important as how and when you pay for it.
There are several payment methods available to you, the seller, which vary in complexity and risk. Before listing what some of these are, let me make a suggestion. Make absolutely certain that the buyer understands you expect payment in U.S. dollars. I cannot begin to tell you how many times customers send payment in other currency forms. Canadians are especially prone to this. To the best of my knowledge, you always lose money by converting another dollar to U.S. currency. Following is a summary of payment methods, in descending order of risk to the seller.
1. Payment in Advance
This is the tried and true in God we trust, all others pay cash method. Direct payment by wire transfer into your bank account is the safest, followed by check or cash. Credit cards are just as good as cash, if used properly. Heres one trick that really helps. Get written confirmation of what was sold, and always obtain a charge authorization before delivery.
2. Letters of Credit
Some say Letters of Credit (LCs) should be the preferred method of payment. Although there is little risk to the seller, be aware that there are many hidden costs, such as bank fees and discrepancy charges. These fees can add up and come off the top, which eats into your gross profit. Ive seen fees in the hundreds of dollars for LCs even when the total payment is only in the thousands. If you are not familiar with letters of credit, please have someone who understands these financial instruments review the terms and conditions in explicit detail before acceptance.
3. Direct Collection Letter
These are commonly referred to as sight drafts. Your customer basically signs a promissory payment note at his or her bank so he or she can take possession of the goods. The promissory note can be for immediate payment or payment can be due after a certain amount of time, which is called the tenor of the draft (no Pavarotti jokes, please). If payment is not made according to terms, do not expect that someone will collect the money on your behalf. What you will have is a solid paper trail that you can use should the matter go to collection.
Here you extend terms and collect payment in your customary manner, although with a few idiosyncrasies. As an example, government regulations may require an original copy of your commercial invoice in order for your customer to remit payment. My experience shows that it is a good idea to send these invoices by courier, as many countries have unreliable postal services.
So which method should you use? How about all of them. For instance, have the customer make a down payment with a credit card, and pay the balance by sight draft. Be creative and flexible, and you will close (and collect) on many more sales.
Rene Bergero serves as export sales manager for Sommer & Maca Industries in Cicero, IL. His column appears bimonthly.
© Copyright 2000 Key Communications Inc. All rights reserved. No reproduction of any type without expressed written permission.