Steven Groner, International Trade Director Kaskaskia College March 2015 Newsletter l:

Steven Groner, International Trade Director
Kaskaskia College March 2015 Newsletter
Phone 618.545.3260; Email: [email protected]
10 TERMS YOU NEED TO KNOW TO HELP YOU
GET PAID FOR YOUR EXPORTS
David Noah/International Trade Blog/Export Basics
What’s the most rewarding, and sometimes frustrating, aspect of being an exporter? For many, it’s simply
getting paid on time and in the correct amount. The rewarding part is self-explanatory—the need to be able
to earn a living! But the frustrating part is worth considering. Look at the ten terms and see if they can
increase understanding regarding the payment process (so profits can be made sooner!).
METHODS OF PAYMENT IN INTERNATIONAL TRADE
In a global marketplace, it’s more important than ever for exporters to offer their customers attractive sales
terms supported by the appropriate payment methods. Here’s a look at the five primary methods of
payment, from least risk to the exporter to most risk.
LEAST SECURE
Exporter
Consignment
Importer
Cash-In-Advance
LESS SECURE
Open Account
Letters
Of Credit
MORE SECURE
MOST SECURE
Documentary
Collections
Letters of Credit
Cash-In-Advance
Documentary
Collections
Open Account
Consignment
CONSIGNMENT: Consignment is a variation of open account in which payment is sent to the exporter after
the goods have been sold by the foreign distributor to the end customer. It is the riskiest of the most
common methods of payment.
OPEN ACCOUNT (O/A): An open account transaction in international trade is a sale where the goods are
shipped and delivered before payment is due, which is typically in 30, 60, or 90 days. Open accounts are
risky for exporters; however, from your client’s perspective, this is the preferred method of payment in
terms of costs and risks.
COLLECTIONS: Also called a documentary collection, this method of payment involves using banking
channels for more than handling the movement of funds for your payment. With a documentary collection,
you are relying on the bank to control your product until payment is made. Your bank (the remitting bank)
sends documents to the importer’s bank (the collecting bank) along with instructions for payment. The
funds re received from the importer and remitted to you in exchange for the documents. The most
significant risk is your buyer saying they changed their mind and no longer want the product that was
shipped. Export.gov has a helpful chapter on documentary collections on its website. The usefulness of
documentary collection is summed up well in the article.
LETTER OF CREDIT (L/C): International letters of credit are a commitment by a bank on behalf of the foreign
buyer that payment will be made to the beneficiary (exporter) provided the terms and conditions stated in
the L/C have been met, as evidenced by the presentation of specified documents. It is one of the most
secure methods of payment for an exporter.
There’s a lot of resources regarding letter of credit. Noteworthy articles for you to research are:
 International Letter of Credit Best Practices
 If you Must use a Letter of Credit, Get It Right
 How to Avoid the Most Common Errors in a Letter of Credit
 The Letter of Credit Triangle
 The Importance of Meeting Deadlines in a Letter of Credit
The export.gov chapter on letters of credit is also a valuable resource for exporters who want to know more
or are (understandably confused by letters of credit.
CASH IN ADVANCE: With cash in advance, the exporter can eliminate credit risk or the risk of non-payment
Since payment is received prior to the transfer of ownership of the goods. Wire transfers and credit cards
are the most commonly used cash-in-advance options available to exporters. With this option, you get paid
up front, and you can use your client’s money to finance production of the product you are selling.
OTHER FINANCIAL TERMS
BANK DRAFT AND TRANSMITTAL LETTER: To help in the transfer of exported goods, bank drafts are
essential in the proper documentation to help keep shipping items organized along their route and efficient
for the exporter. A free template of the bank draft and the transmittal letter can be made available.
UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (UCP 600): The Uniform Customs and
Practice for Documentary Credits (UCP 600) is a set of rules and regulations banks follow for letters of credit
and other types of payment. The UCP is governed by the International Chamber of Commerce (ICC). ICC’s
rules on documentary credits, which are used for letter of credit transactions worldwide, were approved in
2006.
TELEGRAPHIC TRANSFER: Also known as a wire transfer, the telegraphic transfer is a common way to get
paid when exporting internationally.
EXIM BANK: The EXIM Bank is the official export credit agency of the United States. Its mission is to ensure
that U.S. companies of all sizes have access to the financing they need to turn export opportunities into
sales. The EXIM’s aim is to help American businesses export fearlessly and make sure they get paid.
ARBITRATION: Arbitration is essentially private litigation. Instead of one party suing the other in a court
system in particular country, arbitration is consensual; that is, the parties must both agree to submit a
dispute of arbitration. An agreement to arbitrate can be done up front in the contract by inserting an
arbitration clause or even entered into after a dispute begins. Information is available that lists some of the
benefits of choosing arbitration instead of going to court.
AND ONE MORE THING TO CONSIDER…
Credit Checks on International Partners: The U.S. Commercial Service’s International Company Profile
service provides you with financial reports on companies in over 80 countries. The worldwide network of
specialists can investigate the financial strength of a company and provide useful information gleaned from
the local press, industry contacts, and other sources. These reports are required by many export financing
organizations. Information can include:



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A detailed credit report on a prospective overseas sales representative or partner in
approximately 15 days or by the date negotiated with the overseas’ office.
A listing of the company’s key officers and senior management.
Banking and other financial information about the company.
Market information, including sales and profit figures, and potential liabilities.
The U. S. Commercial Service will also provide an opinion as to the viability and reliability of the overseas
company or individual you have selected as well as an opinion on the relative strength of that company’s
industry sector in your target market. To order an International Company Profile, contact an EXPORT
ASSISTANCE CENTER. If you need to find an overseas partner first, you can try the customized matchmaking
services at International Partner Search and Gold Key. (Taken in part from information provided by U.S. Department of
Commerce/International credit checks on International partners)
…A REVIEW OF CULTURAL DIFFERENCES…AS DISCUSSED IN PREVIOUS NEWSLETTERS!

Understand your own cultural assumptions and values. A cultural coach can help with this if time
is short. When you have more time, there are also numerous articles and books written about
cultural differences. Some authors in this area are Geert Hofstede, Lothar Katz, and Fons
Trompenaars.

Learn the basics about the other person’s business culture. It is worth the time and energy to get
briefed so long as you heed the advice. Some mistakes can be made if you misunderstand the
cultural framework and then choose out-of-context tactics. Always ask comprehension related
questions.
..…DURING THE MEETING OR EVENT:

Come into every multicultural situation with an open mind and open ears. Listen to what people
say and, just as importantly, what they don’t say.

When someone’s action or reaction is not what you expect, make a note of it. If it seems
appropriate, ask about someone’s meaning. Otherwise, ask your cultural resource expert
afterwards. For example, silence in Latin American business is generally a bad sign. If met with
silence, follow up to ensure that nothing is wrong.

When someone culturally offends you, respond in the “classiest” way possible. One of the
quickest ways to deeply offend an American team is to make unwanted sexual advances toward
a female team member…this is never acceptable! A businesswoman can politely sidestep an
issue without publicly rejecting the pursuer. Everyone saves face, women are left
uncompromised, and business moves forward.

Above all else, be respectful, courteous and positive. These characteristics will help carry
goodwill and smooth out some of the smaller missteps.
…..AFTERWARDS…Even the most experienced international businesspeople can accidently offend. When
a transgression is realized, a quick apology and showing good intentions will take you at least part of the
way.
Cultural blunders undermine trust, which is a critical foundation for any international business partnership
or multicultural team. Take time to rebuild this trust (if necessary) with in-person visits (when possible) or
other goodwill gestures. Spend a few hours of audio tapes learning a bit of a native language can regain
trust and favor. Savvy international businesspeople are always learning and evolving in their cultural
competency. Learn the differences so that you can apply your experience…and wisdom to other situations.
(Taken in part from: Export Strategies/Becky Destigter)
OTHER INFORMATIVE ARTICLES AND RESOURCES:

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If you are wondering how long it takes to get paid for your exports, check out Part I and Part 2 of
the Why does It Take So Long to Get Paid? Series of articles.
The Trade Finance Guide online describes the basics of exporting financing.
LOCAL CONSULTANTS ARE AVAILABLE TO ASSIST YOU!
Steven Groner, Director
Illinois Small Business & International Trade Centers at Kaskaskia College
618-545-3260; [email protected]