First export order: choose payment terms with a cash-flow timeline
Compare advance payment, letters of credit, collections, open account and consignment, then document timing and questions before accepting an order.
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Discuss payment before committing the first overseas order. Trade.gov recommends choosing a mutually acceptable method during or before contract negotiations. As a practical exercise, draw an order-to-payment timeline and place stock preparation, dispatch and the expected customer payment on it. Discuss when cash leaves the business and when it is expected back.
Advance payment gives the seller earlier cash, but also strains the buyer’s cash flow. The official guide notes that buyers may worry about paying without receiving the goods. Prepare a proposal explaining the requested payment and delivery timing, then ask how it fits the buyer’s purchasing process instead of treating one condition as the only possible offer.
If the agreed method is an advance wire transfer, turn that choice into an operational instruction. Trade.gov recommends clear bank routing instructions. A useful next step is to link the payment instructions to the order, have finance check them, and ask the buyer whether its payment process can follow them.
Discuss a letter of credit with the bank before promising to use one. The guide warns about bank fees, detailed documents and discrepancies that can delay payment. Bring the order size, delivery arrangements and proposed document list. Ask about suitability, costs, who pays the fees and how disputes are handled, and record unanswered questions.
For documentary collection, distinguish documents against payment from documents against acceptance. Banks facilitate the movement of documents and collection, but the guide says they provide no verification process and limited recourse for non-payment. Record the document-release trigger and payment date, and assess the cash tied up while waiting; bank involvement is not a payment guarantee.
If the buyer requests open account, first consider how long the business must finance the order. Under this arrangement, delivery precedes the payment due date. The guide describes the cash-flow advantage to the buyer and higher exporter risk. Put the agreed due date on the timeline and ask about protection such as export credit insurance before deciding.
Consignment requires a separate inventory discussion. Payment follows the distributor’s sale to the end customer, and the exporter retains title until sale; payment is not guaranteed. As a suggested control, track goods in transit and local unsold stock, agree when sales information will be available, and examine suitable insurance and the distributor’s reliability.
Finish with a one-page payment decision sheet containing the chosen method, timing and unresolved items. The guide stresses balancing payment risk with buyer needs. Have sales, finance and the buyer check the sheet before recording agreed terms in the order or contract. Take remaining questions to the bank or an appropriate adviser before making commitments.