Frequently asked questions
What are the export payment methods and options?
The following payment methods are in the order of Low risk to High Risk for the Exporter.
Pre-payment – You ask your buyer to pay you in advance. While this greatly limits your risks, it exposes the buyer to increased risks. This is because the buyer has to pay cash in advance and has to totally trust you to deliver quality products on time.
Documentary credits – You negotiate with the buyer to have their bank establish an ‘Irrevocable Documentary Letter of Credit’. Make sure you get the letter of credit before your production stage, but definitely before you ship your products. Ensure the letter of credit reflects the agreement you made with your buyer. You may want to have your letter of credit confirmed (guaranteed) by an Australian bank or take out export credit insurance.
Once your products are shipped, lodge all the necessary documents with your bank. The bank will check that the documents meet the requirements in your letter of credit. Your documents must be in strict accordance with the letter of credit, otherwise your bank will not be able to claim payment from the issuing bank. Your bank will credit your account when they receive the funds from overseas. If an Australian bank does not confirm your letter of credit and you do not have export credit insurance, you will have foreign bank risk and country risk and possibly currency risk.
Letters of credit are almost invariably issued in strict accordance with International Chamber of Commerce rules.
Documentary collections – You produce and ship the goods. You pass all the necessary documents to your bank, along with a 'draft' or 'bill of exchange' drawn on your buyer. Your bank will pass these on to their agent bank in the buyer's country. If the draft is drawn 'at sight' or 'on demand', that bank will release the documents (and therefore title to the goods) once the buyer makes their payment. If the draft is drawn to mature at some future time, such as '60 days after sight', the buyer will accept the bill of exchange agreeing to make the payment at an agreed, future date. Using documentary collections, you will still have some buyer credit risk, country risk and possibly currency risk.
Collections are governed by International Chamber of Commerce rules. There are two main types of documentary collections: a) Documents against payment and b) Documents against acceptance. The latter is more risky than the former.
Open account – You expect payment after you send the goods, an invoice and other documents like a bill of lading to your buyer. However, the buyer can receive the goods and not pay you, leaving you totally exposed to buyer credit risk, and possible country and currency risk. However Export Credit Insurance may protect you from non payment. Specialists Export Credit Insurance Brokers are NCI, AON, Marsh, Jardines, Coface, QBE Trade Credit and Atradius.
Credit risk, insurance and background checks – To protect yourself against payment default, it is prudent to use payment methods such as irrevocable letters of credit etc. Your bank will be able to provide advice on payment options and their relative advantages. Banks can also advise on ways in which you can protect yourself against changes in currency relativities as international trading exposes you to foreign exchange risks.
If your buyer requests for an Open Account, Export Credit Insurance may protect you from non payment. Specialists Export Credit Insurance Brokers are NCI, AON, Marsh, Jardines, Coface, QBE Trade Credit and Atradius.
Alternative means of undertaking company background checks are by using independent service providers such as Dun & Bradstreet, TCM Group International, DMS Group or Austrade may be able to identify a service provider in the relevant country.