Export-Import Bank of the United States exim.gov | 1
EXPORT
PAYMENTS
EXPORT-IMPORT BANK
OF THE UNITED STATES
5 WAYS TO GET PAID FOR EXPORTS
Export-Import Bank of the United States exim.gov | 2
Interested in learning more about the nuts and bolts of exporting? This article is
a synopsis of Chapter 14: Methods of Payment from “A Basic Guide to Exporting.”
Developed by our partners at the Department of Commerce, the “Basic Guide to
Exporting” outlines many issues that both new and experienced exporters should
know about when competing for deals or entering a new market overseas.
Getting Paid!
More than 300,000 small and medium-sized U.S. companies are growing by exporting products to
foreign buyers. When deciding to export, business owners consider several things including: does
exporting align with the company’s growth strategy; do we understand what it takes to export
profitably; and maybe most importantly: how do I get paid?
As with all sales, being paid in full and on time is key to exporting successfully, and like most
negotiations between companies, financial transactions are influenced by local customs, cultural
norms and common practices. Asking buyers for cash in advance, for example, is not as common
in most of the world as it is in the United States. Offering credit terms to foreign buyers increases
risk, but the upside may be a more competitive position in the market and, greater growth in
revenue. Products like Export Credit Insurance mitigate that risk.
Domestic sales to U.S. customers with good credit are typically made on an open account;
otherwise, cash in advance is required. For export sales, five common methods of payment, listed
in order from most secure for the exporter to least secure, are:
The next page gives brief descriptions of each, and some suggestions for how to mitigate risk.
5 Ways to Get Paid for Exports
CASH IN
ADVANCE
DOCUMENTARY
COLLECTIONS
LETTERS OF CREDIT OPEN ACCOUNTS
MOST SECURE LEAST SECURE
CONSIGNMENT
Export-Import Bank of the United States exim.gov | 3
5 Ways to Get Paid for Exports (continued)
Cash in Advance (Most Secure)
On the surface, cash in advance
may seem ideal for the exporter. It
eliminates collection problems and wire transfers
make payment almost immediate. For the buyer,
however, cash in advance increases risk and may
create cash flow problems. Exporters who insist
on advance payment may lose out to competitors
who offer more flexible payment terms.
Letters of Credit
Versatile and secure, a letter of credit is a commitment
on behalf of the foreign buyer that the exporter will
be paid when the terms and conditions stated in the
letter of credit have been met, as evidenced by the
presentation of specified documents. The more secure
letters of credit are irrevocable, meaning that it cannot
be changed without the agreement of both parties.
Documentary Collections
Documentary collections, also known as sight drafts,
delegates payment collection to the exporter’s
bank, which sends documents to the foreign buyer’s
bank with instructions to release the documents to
the buyer in exchange for payment. Documentary
collections can either be paid on sight, or on a
specified date. Both the exporter’s and the importer’s
banks act as facilitators of documentary collections,
but it is less secure than other methods and there
is limited recourse in the event of non-payment.
Open Account
Open accounts are advantageous for the importer
and can be a viable method of payment for foreign
buyers who are well established, have a proven track
record of favorable payment or have been thoroughly
checked for credit worthiness. Open accounts are
often used in highly competitive markets, particularly
if there is strong competition from local suppliers.
Consignment (Least Secure)
Consignment, often used for heavy
equipment and machinery, is a form of
an open account where goods are shipped to a foreign
distributor who pays only for those goods that are sold.
Unsold goods may be returned to the exporter after a
specified time period. While consignment is clearly very
risky, it may enhance an exporter’s competitive position
and reduce the direct costs of managing inventory.
Reduce Your Risk!
There are a number of safeguards U.S. exporters
can use to be competitive in international
markets while reducing risk. The risk of non-
payment, for example, can be mitigated by trade
finance products like Export Credit Insurance
offered by commercial lenders and the
Export-Import Bank of the United States (EXIM
Bank). These institutions also offer pre-export
working capital loans to finance production and
improve cash flow while waiting for payment.
Export-Import Bank of the United States exim.gov | 4
Are you ready to work with EXIM?
Before getting started, it’s important to know the basic
requirements for working with EXIM Bank. While it’s always
a good idea to call us with any questions about our policies,
generally your business will need to meet the following criteria:
• Been in business for at least three years
• At least one person working in the firm full time
• Has a positive net worth
• Exports U.S. made products and/or services
provided by U.S. workers
Let’s get started:
Request a free consultation today with your regional specialist.
grow.exim.gov/contact-a-trade-finance-specialist
Additional Information
BASIC GUIDE TO EXPORTING
GUIDE TO EXPORT CREDIT INSURANCE
EXIM.GOV
grow.exim.gov/basic-guide-to-exporting
grow.exim.gov/eci-ebook
exim.gov
Learn the basic fundamentals of exporting
and turn export opportunities into sales.
Learn how to protect your foreign
receivables from bad transactions.
For more in-depth information about EXIM,
visit our website.
5 Ways to Get Paid for Exports
Domestic sales to U.S. customers with good credit are typically made on an open account; otherwise, cash in advance is required. For export sales, there are five common methods of payment. Download this white paper to learn more.
Latest in Home