How to manage international payments
Trading overseas can be a minefield of currency fluctuations,
legal complications and communication problems. This can lead to a
breakdown in relationships with suppliers and distributors - and
worse still, leave you out of pocked. You need to pay special
attention to your overseas transactions if you want to stay ahead.
This guide will help with:
- Payment terms
- Managing currency
- Insurance
1) Payment terms
Because UK law won't apply in many of your overseas
transactions, it is important to limit your risks as much as
possible to ensure you get paid. There are four main ways you can
arrange payment: in advance, with a letter of credit, with a 'bill
of exchange' once the goods are in the customer's hands, and by
invoicing. To decide how to arrange payment, you should balance
your risks against your customer's requirements and
expectations.
- Limit your risks as much as possible
- Arrange payment in advance, with a letter of credit, with a
bill of exchange or by invoicing
- Balance your risks against your customer's expectations
2) Managing currency
Fluctuations in Sterling will affect how much you can afford to
buy and sell when you draw up a contract with your overseas
suppliers or distributors, as well as when you make or receive a
payment. To make this more secure, speak to your bank or
alternative currency provider about pre-booking or pre-purchasing
currency at preferable rates.
- Fluctuations in currency will affect how much you earn
- Currency price will fluctuate between when you make a deal and
when payment is due
- Pre-book currency to secure your deal
3) Insurance
Insurance against non-payment by overseas customers will prevent
a delayed or lost payment from having serious consequences. Make
sure you factor cost of insurance into any pricing discussions
because it could raise the cost of the goods for the buyer, and
then decide whether you want to opt for commercially available
insurance, or government-supported insurance.
- Insurance will prevent late payment from restricting your
cashflow
- Factor the cost of insurance into your deal
- Decide which type of insurance you want
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