Payment and financing arrangements for exporting are more difficult than for merely selling in the home market because the customer lives in another country.
Not only does this mean that a great distance separates the exporter and his customer, but the customer probably deals in a different currency, works under different regulations, communicates in another language, uses other customs, and is less easily subject to legal recourse should this be necessary.
All these things can be obstacles to the exporter, unless he is aware of the correct procedures and knows when and how to use them.
1. The Export Invoice:
The first step in getting paid for an order is the preparation of an invoice for the goods.
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The export invoice is a basic document in exporting. It is basically the same as any other sales invoice. It is the bill for the goods. It is the document in which the customer is told in detail how much money he has to pay for the products.
But the export invoice has wider uses than an ordinary invoice, and there are different kinds for different purposes.
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The pro-forma invoice is used by the customer in an export market to make arrangements for import licenses or exchange control clearance. The commercial invoice is used by the customer to secure customs clearance of products once they reach his country, and for making insurance claims.
To fulfill requirements of the importing country the exporter may also have to supply a certified invoice, which is a commercial invoice certified by a chamber of commerce or other specified institution, or a consular invoice, which must be prepared on an official form and can be quite costly.
2. Period of Credit:
Whenever goods are sold, the seller must agree with the customer on the period of time that will be allowed before the goods must be paid for the period of credit.
Deciding on this question of credit is difficult. If the credit period extended to a customer is shorter than what competitors are offering, or if the methods of payments are more demanding, business can easily be lost.
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On the other hand, it is useless for an exporter to sell abroad if he has to wait too long for his money or has too many bad debts.
The creditworthiness of a customer, and in some cases of his country, is often difficult to assess. The ordinary credit report, which may be sufficient for home sales, is usually not sufficient when considering credit terms in an export market.
Even the most willing and credit-worthy customer cannot complete payment if his country runs into foreign exchange difficulties and imposes restrictions upon payment abroad. In these circumstances there can be delays in settlement or even a complete loss.
So the economic, financial and political situation in the country that is importing the goods must be taken into account before credit is extended abroad.
This type of risk is known as ‘country risk.’ The longer the period of credit, the more important ‘country risk’ becomes, because the more time there is for changes in government policy.