When businesses decide to expand and venture into the international markets through trading, they have to consider several things. Businesses have to analyse the feasibility of export in terms of the company’s growth and set up the right system to manage exports. Moreover, they need to understand international laws and duties. Additionally, they have to learn the payments effectively. These questions are some of the most basic and important aspects to ponder.
As with all sales, the key to exporting is to ensure a proper payment system that gets you the payments in full and on time. Exporters need to answer the question of payment early on since it is an essential aspect of international trade. However, given the complicated nature of international trade, it can get a bit tricky. There are several payment terms or methods of payment that you can opt for.
The payment method you chose plays a role in determining the attractiveness of your offer. Moreover, it can also affect the convenience, financial safety and security of the foreign customer. When you are selling products or services to a global audience, you need to make your payment options flexible and accessible to everyone without losing out on security and minimizing the risks involved.
Currently, there are three proven tools that most well-established and reputed exporters use to streamline their international transactions. They are escrow services, documentary collections, and letters of credit.
1. Escrow Services
Escrow service is a great option for international transactions. It especially works as a guarantee when dealing with buyers who provide a higher risk of non-payment. This method involves cash in advance option where you and the buyer bring in a third party to collect, hold and disburse the funds at the decided time. You can open an escrow account with any of the platforms that provide the services by paying an escrow account fee. It reduces the risk of being scammed and ensures that both the parties involved meet the terms of agreement for sale. We at Tazapay offer digital escrow services at a 1.8% escrow account fee of the transaction value and no other hidden payments involved.
2. Documentary Collections
International banking rules govern documentary collections, and it is slightly lighter on your pockets. However, the trade-off is that the protection for sellers against buyers is lower. It would help if you only took up DCs with buyers that have good credit. Under DC, you agree to ship under a transport document, and the funds are released once the buyer gets this document and is ensured that the package will reach him/ her. Once the buyer accepts the document, it is sent from your bank to the buyer’s bank, and the foreign bank releases the funds into your account. However, an important point to note here is that your bank might facilitate the transaction, but it does not guarantee it.
3. Letters of Credit
Letters of credit offer you a quick and trustworthy method of guaranteed payment. They are based on a set of international rules that govern both the buyer’s and seller’s banks that have been in use for years now. While LCs are inexpensive, there is the cost involved, and you require expertise in executing them without any mistakes. The best part about LCs is that they can be used for transactions ranging from a few dollars to billion-dollar deals.