There are several traditional payment methods used for overseas shipments. Catagories range from no risk to high risk. Below is a brief description of each:
Advance Payment – no risk to seller. Goods are not shipped until payment has been received from the buyer. A company using this method of payment may lose customers as this not attractive for the buyer.
Credit Cards – low risk to seller. Usually currency fluctuations are monitored on an hourly basis by the credit card company minimizing risk.
Letter of Credit – low risk to seller. A letter of credit is issued by the buyer’s bank to the seller’s bank stating payment to be made upon shipment of goods. This type of payment is favorable to both the buyer and the seller; the buyer is assured the goods will be shipped prior to release of payment and the seller is assured of prompt payment upon shipping of goods.
Foreign Bank Checks – medium risk to seller. A foreign bank check can be drawn on either a U.S. or foreign bank. There usually is a processing fee involved, however, most large banks process these daily.
Open Account – high risk to seller. Payment is not required until goods are received with no guarantee of payment. If you must sell on open account terms, check the buyer’s credit throughly as recourse in a foreign country can be difficult and costly.
The following are some non-traditional payment methods used by exporters:
Direct Debit – low risk to seller. Direct debit requires the seller to open a bank account in the foreign country. The seller can directly debit the buyer’s account.
Bank Transfers – low risk to seller. The foreign buyer transfers funds directly to the seller’s bank. Although, this method can be difficult to keep track of when multiple orders are involved.
Consignment – high risk to seller. The seller will not receive payment until the goods are sold by the buyer. Payment may take a long time to receive and if goods are not sold, the seller will have the added cost of returning the goods to the country of origin.