Doing Business Overseas 1480 x 987

Payment options when trading overseas

We know that the thought of trading internationally can be a daunting prospect so we've put together a guide on the various payment options available when doing business overseas.

The most suitable method of payment when trading internationally will depend on both parties’ credit appetite (exporter and importer). Different payment options have associated risks and costs to consider and will need to be fully negotiated between the two parties.
Risk Ladder

There are four main payment options for exporters. These are shown in order of risk in the graphic below. The higher up the method, the more risk it entails for the exporter, but less for the importer.

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There are lots of things that need to be taken into account when considering a suitable form of payment, this includes costs, country credit risk, and individual customer credit rating. Credit ratings can be obtained as part of a Bibby facility.

Open Account Considerations

  • Most frequent form of payment for exports from the UK to the US and Europe
  • Open account payments are preferred by most buyers as they’re unsecured, so most favourable for negotiations in winning the contract from the competition
  • It’s also a low cost form of payment compared to others. BFS recognise this and the risks associated and our facilities are designed to support open account trading
  • Customer credit risk
  • Country risk
  • Insurance against risk of non-payment (BFS bad debt protection link)
  • Full understanding of the process if a customer refuses to pay and protection has not been obtained
  • Credit control – chasing payment with different languages and timezones (international credit control expertise link)
  • Impact to cash flow - what are the country’s payment terms and what payment terms will be offered with this deal? (Export invoice finance link)
  • Which currency has been negotiated for payment? There are risks associated with multiple currencies so something needs to be in place to deal with this. (Link to FX)

Documentary Collections Considerations

  • Not a secured or guaranteed form of payment
  • There are costs attached as a bank is selected to act as an agent for the payment collection
  • Payment or promise of payment in accordance with the agreed credit period is made by the buyer to a bank.
  • The bank will only release key documents (A Bill of Lading) to the buyer on receipt of payment (sight draft) or the acceptance of the credit period (term/usance draft).  The Bill of Lading is a key document required by the buyer to obtain the goods that have been shipped.
  • Risk of buyer refusing to take up documents after the goods have been shipped
  • Country risk
  • Customer credit risk
  • Most suited to sea freight
  • What is the law and legal framework of the buyer’s country? If the Bill of Exchange is dishonoured than it can be protested through being notarised in the buyer’s country. (The Bill of Exchange Act 1882)

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Documentary Credits/Letters of Credit Considerations

  • A Letter of Credit is a written undertaking to pay by a bank
  • This offers a secure form of payment and tends to be issued in one of three ways: revocable, irrevocable, irrevocable and confirmed by UK bank. Consider the differences and requirements
  • Cost implications
  • Credit period agreed under Letter of Credit – sight or term payment
  • Compliance under the Letter of Credit, this needs to be provided accurately and to timescales. Check these requirements in advance
  • UCP 600 and ISBP rules apply – these can be obtained through the Chambers of Commerce.  (Link)

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Cash with Order/Advance Payment Considerations

  • Least favourable for the buyer
  • Small values and new businesses may make use of credit cards for payment
  • Part or full payments could be negotiated upfront 

Here at Bibby Financial Services, we've got over ten years' experience funding enterprises with overseas customers or suppliers helping them to negotiate all aspects of international business thanks to our global presence and multi-language teams. 

If you would like to know more about how we can help you with exports, trade or invoice finance, click on one of the links below or call our team to discuss your funding requirements. 

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Do you sell overseas?

Our Export Finance offering is already helping to fund businesses trading in over 100 countries.

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Invoice Finance

We have a range of invoice finance funding options which we can tailor to support and grow your business.

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Trade Finance

Work with foreign suppliers? We can take the hassle out of buying finished and unfinished goods.

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Foreign Exchange

Speed up your funding with our 'FX' service to directly convert your currency, removing multiple transactions and clearing times.