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Doing business means taking risks. This may be even more true for international business. Delivering to customers abroad can sometimes present challenges, and getting paid (on time) can sometimes be even more of a challenge. That’s why it’s important to be well prepared.
The simplest and safest solution is to deliver upon receipt of payment in advance. But not all customers will consider this an option, and this can weaken your competitive position. So if you do decide to deliver with a payment term, it’s wise to incorporate several steps into your process.
1. Make sure you know who you’re doing business with
Sometimes it’s easier said than done to determine a buyer’s payment history. When doing business in developed markets, there are, of course, various credit reporting agencies that can help you get a clear picture of a customer’s payment behavior. However, it’s much more difficult when you’re supplying customers in emerging markets and no information from external agencies is available. In that case, you could still rely on references from other companies that also supply the same customer—which you’ll, of course, verify.
2- Ensure you have clear (signed) contract terms
It may sound obvious, but make sure you establish clear agreements. Ensure you have clear terms and conditions and that the customer has accepted them. Specify the payment terms, how any payment arrangements will be handled, and what the interest rate will be for late payments. These agreements should also specify which laws apply in the event of problems or disputes. To prevent misunderstandings or even disputes, it’s also wise to arrange delivery terms, for example, using Incoterms, which are internationally recognized.
3- Choose the Right Payment Method
There are various ways to properly arrange international payments. Of course, you can simply state in the contract that a bank transfer will be made after delivery. It’s advisable to make it as easy as possible for the buyer to pay an invoice. For example, iDEAL is a widely used payment method in the Netherlands, while in Belgium it’s Bancontact and in Germany it’s Sofort. So, find out which options make it easiest for your buyer. After all, the easier it is, the faster payment will be made. To build in more certainty, as an exporter you could also opt for methods such as a bill of exchange, a Letter of Credit (L/C, also known as a documentary credit), or a documentary collection. However, these payment methods are often only suitable for higher transaction amounts.
4- Take your customer’s payment culture into account
Despite the payment methods mentioned above, it may be customary in other countries to pay in cash or by check. Make sure these details are clear so you know what to expect as a business owner.
In addition, your customers’ payment habits often vary by country or region. Keep this in mind when setting the payment terms on your invoice. This way, you’ll be less likely to encounter unexpected surprises.
5-Send a reminder just before the due date
Of course, sending a reminder is always a delicate matter, because as an exporter, you don’t want to strain the business relationship. While this is often done without issue in the Netherlands and neighboring countries, it’s not always so straightforward in other countries. Still, simply reaching out—for example, to ask about their experience with the purchased products—is sometimes enough to encourage the buyer to make the payment.
Ultimately, (export) credit insurance is the safest solution
Of course, it goes without saying that we would say this as an export credit insurer. And of course, we realize that export credit insurance is by no means always possible. Moreover, there are costs involved. But with credit insurance, you’re always on the safe side. This way, you can be sure that you’ll always get paid after a transaction.