HOW CAN EXPORTERS RECOVER THEIR MONEY?

An export in international trade is goods/services produced in one country being sold in another country. The seller of such goods is called the Exporter and the foreign buyer is known as an Importer.

HOW CAN EXPORTERS RECOVER THEIR MONEY?

An export in international trade is goods/services produced in one country being sold in another country. The seller of such goods is called the Exporter and the foreign buyer is known as an Importer. Export of goods often requires a lot of authorities to be involved. In almost all countries, a one time procedure of licensing has to be completed in order to act as an exporter/importer. However, it is not unheard of that exporters often lose a lot of money because of the payment methods.

There are five primary modes of payment to the exporters.. They are- consignment, open account, letter of credit, cash in advance and collections.  With Cash-in-advance payment terms, an exporter can avoid credit risk because the payment is received before the ownership of the goods is transferred. In international sales, credit cards are the most commonly used method of payment in advance as it involves huge risks of currency exchange as well. Hence, the credit risks should be assessed thoroughly and as accurately as possible to take the required  precautions by using appropriate tools.

Even though there  are several risks involved in the export business, proper remedies can help solve such problems.

 

EXPORT INSURANCE

 

For companies that are exporting goods to foreign markets, there are certain ways to ensure the payments. In case the foreign buyer fails to make the payment, then the insurance company will pay, and this is known as trade credit insurance. Usually, the insurance companies agree to pay 80-95% of the total sum of the money.  After the payment has been made by the insurance company, they take over the claim against the importers. However, ensuring the export money also involves costs. The insurance company scrutinises the past business transactions before offering the export payment insurance. 

 

L/C (LETTER OF CREDIT) PAYMENTS

 

This method of payment is safe for both exporters and importers. In this the two agree to use Letter of Credit payment and also agree on the conditions of the letter of credit.  It is indirectly an agreement between two banks, where the buyer makes a declaration to his bank to pay a sum of money to the seller’s bank on his behalf. The banks continue the process if all the L/C payment criterias are fulfilled. Under this method, the seller does not have to be afraid of the non-payments because the buyer does not have money anymore. 

 

A DETAILED CONTRACT

 

Every business transaction needs to follow strictly, the signed contract. International sales and purchase contract belongs to the export documentation and needs to be well drafted. All the important aspects should be taken into consideration and set in the contract. Any dispute regarding the payments in the future, should be dealt with in the contract beforehand. This ensures safety to the exporters regarding their money.

 

The rewarding part is self-explanatory. Obviously, we need to be able to earn a living! But the frustrating part is worth considering. Hence, all the above mentioned modes of recovery of the payment must be kept in my by the exporters before doing business.

-Ridhika Kapoor