Jun 12 2009
USA Export: Expect Longer Payment Terms
Unless you already have USA Export customers or have giant companies purchasing your products, your typical terms of payment will be Net 30 days or shorter. Most companies operate with money borrowed from the bank in the form of loans or lines of credit. Any day that a payment comes in after the 30 days, it costs real money and slices into the bottom line. Once international customers are being approached, there are other issues to consider before pricing is even brought up:
- What is the average size of an order for the products? Is it a couple thousand Dollars or is it more than USD 20 thousand? The smaller amounts do not warrant a letter of credit because of its cost. The customer will be reluctant to pay a bank hundreds of Dollars to draw up a letter of credit.
- How long will it take for your product to reach the USA Export customer? If the product will be shipped on pallets or in containers by ocean, there is a good chance that it will be close to 30 days between the time that the goods leave the dock and the time that they arrive at the customer’s dock. Will the manufacturer make his customer pay for the time that the product is floating on the water by keeping the normal terms of payment of Net 30 days? Or, is that manufacturer open to extend them to Net 60 days?
- Is the customer a one time customer or is it a prospect for repeat business? The strategy may be different depending on how business is being looked at. Is it important to the manufacturer to establish a long term relationship or is the nature of the business such that after this sale is made, there will be no other sales?
Even with a letter of credit, a customer may request longer payment terms than the manufacturer is accustomed to: 90 days, sometimes 180 days or even longer than that. Will that manufacturer automatically refuse these payment terms? Or will he have a pricing matrix available that takes all the different lengths of payment terms into account? Is it possible to include the cost of extending longer terms of payment in the original purchase price for the USA Export customer?
Hi! I am very sorry but I want to ask something a little outside this post since you are experts in this field.
I have a business in California and few days ago I got some customers from Latin America that needed supplies for Water Distillators and related merchandise. But I haven’t exported absolutely anything in my life! How can I learn as son as possible the ABC’s of the exporting process?
Please! I will appreciate any help. I don’t want to lose the opportunity.
Thank you in advance!
awhstore@yahoo.com
Dear AWHSTORE,
You have a fabulous advantage. You have an order already. You do not need to look for that business any more. You have it.
It is very simple and not so different from selling/shipping domestically. Here are some questions you need to answer for yourself:
1) How is the Latin American customer going to pay and when? Do you have the capability of taken credit card payments? For a first order I would always request payment in advance.
2) You may need to send your Latin American prospect a Pro Forma Invoice for him to pay you in advance. A Pro Forma Invoice is like a regular Commercial Invoice you use for domestic billing, except that this Pro Forma Invoice should not be recorded in your accounting system. Instead it is like a confirmation of the order. This Pro Forma (PF) Invoice must clearly state that it is a Pro Forma Invoice. Write in your banking information (ABA plus your checking account ifnormation on the PF Invoice so that the prospect may wire to you.
3) Do you know what the transportation costs will be? Will you be adding this cost to your Commercial Invoice cost or will you leave that to the customer? Will you ship it via FedEx, UPS or another courier, or with a freight forwarder? Shipments under 250 lbs typically should go by courier.
4) What is the value of the total order? If it is more than $2500, you will need to prepare a Shippers Letter of Instruction or FedEx or the freight forwarder will do it for you at a charge.
5) Make sure that the product is properly packaged. Any international shipment is typically handled 42 times. Seal all edges. Apply clear addresses – typed, not handwritten, in order to minimize delivery mistakes, delays and losses.
6) Do you have shipping insurance? If you are shipping with FedEx or UPS they will ask whether you want insurance? It is expensive and you may want to include it in the cost of the transportation. If you will be shipping with a freight forwarder, ask them to insure this shipment for you.
7) You may need to write the Commercial Invoice and /or Pro Forma Invoice in Spanish. I know that Guatemala requires it.
Oliver
My question pertains to help from the US government. Do you know of a program where our government insures an account receivable to a foreign customer. It would seem with the huge trade deficit that our government would have a program that would encourage export sales.
Please advise.
Thank you,
Ross
Ross,
Thanks for the question and I apologize for the late reply as I was on vacation. Yes, there is a way to insure your foreign receivables through the EXIM BANK. There is a catch though, in order to get that receivable insured you must insure all your company’s receivables. THE EXIM BANK does not want to take all the risk…
All the best,
Oliver Sintobin