Extending Credit to Foreign Buyers

With exporting, negotiations on financing terms can be just as arduous as those on pricing. With competitive products pouring in from companies all around the globe, the financing terms you offer can often times be the deciding factor on whether or not a buyer will make their purchase from you.

Of course, as an exporter you'll want to get paid as quickly as possible; however, when dealing with foreign markets you'll most likely have to extend your credit terms if you want to make a sale. If your products are shipping via container ship, there will be a 20-30 day shipping time that needs to be considered. Most overseas importers are unwilling to pay an invoice before they even receive the goods. If you are used to getting net 30 terms for domestic sales, you will need to seriously rethink your export financing terms.

Risk verses reward

Of course, with extending such generous finance terms comes risk. Risk that you will need that cash before the buyer pays you. However, if you decline to offer favorable payment terms, you very well may lose out on the sale completely. Here are some important factors to consider when deciding what payment terms to extend to a foreign buyer:

Uniqueness of your company's products. If you are the sole manufacturer of a unique and specialized product that is in demand, then you may hold the upper hand in the negotiations and will be able to shy away from longer financing terms. However, if you are selling a product that is similar to others and has a lot of competition, then chances are you will need to offer longer payment terms in order to secure any overseas sales. With so much competition, if you're not willing to budge on terms you can bet another company will.

Ability to obtain financing, if needed. Part of the risk that comes with extending payment terms is not knowing whether or not your company will need that cash before the buyer pays. If your company is small then your invoices for parts, labor and shipping will surely arrive before you get paid. In that case, will you be able to obtain temporary financing to keep your company afloat until you receive payment?

What you can offer instead of longer financing. If you are not able to offer payment terms as long as your competitors, then what else can you offer? Perhaps a lower cost, custom printing at no charge, or an added accessory? If you can't compete on financing, then think of a way you can compete so that your company is not out of consideration.

Flexibility of the buyer. It's possible that a foreign buyer will agree to payment by escrow, letter of credit (LC) or a partial payment upfront. If you are not able to give extended payment terms, then see if you are able to negotiate the terms with the buyer, so that they are less one-sided.

Whether or not extending financing to a foreign buyer is the right course of action, depends on a variety of factors. If there is a high demand and little competition for your products, then it's safe to say you will not be forced into a corner over finance terms. However, if you are merely a fish in a sea of similar products, then you'll have to compete with the best of them - and most times it's the company with the best pricing and financing terms that "wins" the purchase order.