Payment for exporting is a complicated process and can take one of various forms. These are:
- Payment in advance. You are unlikely to be in this position when starting out, depending on your bargaining position.
- A documentary letter of credit (l/c) from the bank. The most common form of export payment, this is a guarantee by the bank that they will pay the exporter for the goods delivered provided the exporter complies with the terms and conditions laid down in the l/c. Compliance involves, among other things, producing certain documents (another reason why your paperwork has to be in order).
- A documentary collection. Only when the importer accepts a bill of exchange (which is done via payment), will an overseas bank acting on your bank’s behalf release the documentation necessary for them to take possession of the imported goods. This enables you to protect goods until they are effectively paid for.
- Open account. You only invoice the buyer after you have shipped the goods. This option offers the least protection and should only be carried out with a trusted party.