There is a whole range of methods available to us through
our banks that help us to ensure, insofar as is possible, that our
international customers pay on time for goods and services they have purchased
from us. But the ultimate responsibility for getting paid on time rests with
each and every one of us who sells into international markets. There can be no passing the buck!
It’s all about relationships: the relationship with your
bank to facilitate the right payment mechanisms; with your freight forwarders
to ensure shipments and documents are supplied in a timely and accurate basis; with
your credit insurance company to insure your international orders; with your
local Chamber of Commerce to help with external documents such as Certificates
of Origin; and your solicitors for setting out your payment terms and any
necessary contracts.
However, one relationship that is frequently overlooked in
ensuring regular and on time payment is the most important relationship - between
you and your customer. It is sometimes difficult to establish the right level
of trust when entering into a new international business relationship. You and
your customer want different things: your preference would be to be paid in
advance; your customer would prefer to pay after taking delivery. So if you
want to build that relationship and achieve regular, repeat orders, you have to
find some middle ground.
Many companies are too rigid about being paid in their own
currency, delivering on an Ex-Works basis, or both. These are things that can
send negative signals to your international customers, because both issues are
very easily overcome, and there is a wealth of regulation to ensure the safe
use of alternative currencies and delivery terms. It is difficult to build a
long term spirit of trust when your starting point seems to be the word ‘no’:
“no, I’m sorry, I won’t accept payment in euros””; no, I’m sorry, our terms are
Ex-works”. You have to be much more
flexible than that to engender trust, and for your customers to feel
comfortable about placing repeat orders with your business.
There are so many things that can determine the best method,
and the best likelihood, of getting paid. The destinations country can be a key
factor in determining the method of payment: customers in India, South East
Asia, the Middle East, many African nations, are accustomed to paying for goods
by means of Letter of Credit (LC), and this is a suitable and safe option for
larger orders from those areas. LCs ring-fence your customer’s payment for your
goods through the banking system, the agreed delivery terms trigger the payment
period, and LCs negate the need for credit insurance. So they can be a very
useful tool, for orders with a value greater than £10,000.
As it is not always possible or practical to insist on
payment by Letter of Credit, companies need to be able to offer a range of
payment alternatives, ranging from payment in advance to payment against
documents, to term payments, through to open account. When I worked with a new
distributor in Turkey, the first orders were paid for either by LC for large
orders or in advance for smaller orders. After a period of good payment
performance and in order to help the distributor win more business, I offered
60 day payment terms on an open account basis for up to £10,000 of orders at
any one time, with the understanding that a single default would result in a
return to payment in advance. It worked, and helped to build a strong bond of
trust and friendship between us for many years afterwards.
Trust is an amazing thing, and makes both for long term
business and personal friendships. Another such friendship began to develop
with one of my best distributors when he phoned my office one day to advise
that because his main customer had defaulted on payment, he would need a longer
period of time to settle my invoices. “I’ve heard this one before” I thought.
But more than that, he told me as soon as the problem arose, and further, he
proposed a plan that would ensure stage payments that would bring his account
back into order within three months. He was as good as his word, and our
business and friendship developed in tandem from that point, and payment was
never a problem.
So the message is that the closer you are to the business of
your selling partners, the more care you take to understand their needs, and
the more they understand yours, the less you will need to spend in time and
resource chasing overdue payments. It is
unlikely that you will be able to apply one set of payment terms universally,
but by being sensibly flexible you will find the right method for each of the
markets where you sell.
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