Get paid for your exports

Your payment terms are your first safeguard against a buyer who does not pay. Four things decide which terms to offer: how well you know the buyer and whether this is their first order, the terms they ask for or expect, the risk of non-payment in their market, and the value of the contract.

Match the payment method to the buyer

In practice that means:

• Ask for payment in advance if the buyer is new to you, has a poor credit rating or is in a high-risk emerging market. It is the safest option and lets you manage your cash flow, but you may lose goodwill and competitors may offer easier terms.
• Use a letter of credit when the order is high in value and you cannot get certainty of payment any other way. It takes time to prepare and the banks charge fees.
• Use a documentary collection for an established buyer where a letter of credit would cost too much. It is safer than open account, and quicker and cheaper than a letter of credit, but the bank does not guarantee that the buyer will pay.
• Offer open account, with payment due 30, 60 or 90 days after the invoice, delivery or completion, only to a buyer you trust. It is simple and cheap to arrange, but carries the highest risk of non-payment and misunderstanding.

Avoid taking payment by cheque: cheques are slow to clear and can be cancelled or bounce. Check that your chosen method is allowed in the buyer's country, because some countries restrict it. Open account, for example, is not allowed in India.

Check the buyer before you offer credit

Before you agree terms with an overseas buyer:

• Run a credit reference check through a provider such as Experian, Equifax or TransUnion.
• Ask the buyer for a bank reference and trade references.
• Research the buyer online, visit their offices if you can, and ask local chambers of commerce or trade associations about them.
• Consider taking payment in advance for the first few invoices to build trust.

Keep ownership until you are paid

Insure against what is left

Use payment terms that secure your money first. If you cannot, trade credit insurance moves the risk of non-payment, insolvency or bankruptcy from you to the insurer. A policy can also cover political risk, such as unrest or a change in the law that stops the buyer paying.

Private policies usually cover your whole order book rather than single sales. The premium is usually around 1% to 2% of the credit limits covered, and if you claim, the policy pays only a percentage of the unpaid debt, so you carry the rest. Arrange cover before you start the export, especially if you will have a large amount of cash tied up, and allow for the premium when you set your prices.

If you cannot get insurance from the private sector, UK Export Finance may be able to insure you.

UK Export Finance cannot insure short-term business, meaning a horizon of risk under 24 months, with buyers in EU member states, Australia, Canada, Iceland, Japan, New Zealand, Norway, Switzerland and the USA. It treats the private market as able to cover them. Cover depends on where your buyer is, not where the goods are going.

Choose your invoicing currency

If you have not fixed the exchange rate, you have not fixed your price. Some buyers will not accept sterling invoices, and in some markets, such as the USA, invoicing in the buyer's currency is expected.

If you invoice in a foreign currency, you can also reduce the risk by:

• setting the exchange rate at the day of payment in the contract
• adding a margin to your price to cover possible losses and the cost of changing currency
• agreeing shorter payment terms, because the longer you wait the greater the risk of rate changes.

Your bank or a specialist foreign exchange provider can advise on a strategy that suits your volumes.

If a buyer pays late

Follow up as soon as a payment deadline is missed and find out why: a documentation problem, a complaint about quality, money trouble or insolvency. Resolve documentation and quality issues quickly. If the buyer is short of money, a short extension may be worth giving, depending on the long-term value of the relationship. Make a claim on your credit insurance if you have it. Specialist international debt collection agencies are an option, but their costs can be significant.

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