Overseas customers – getting paid


Using mobile phone at airport - Overseas customers – getting paidSelling to overseas customers can be good for growth, but many businesses are put off by serious fears they will end up with bad debts. Taking the right precautions can reduce the risks as can knowing what to do if you have to take legal action

Use Incoterms to protect your business

It's key to use the right terms in your contracts in the first place. If you are exporting, trade using Incoterms - the internationally recognised standard trading terms. By using the right Incoterm, you minimise the risk of any ambiguity in your contract.

Even so, local laws may mean that some Incoterms are not fully effective and confusion can arise. A lawyer with expertise in foreign trade can advise you on the detailed requirements of each Incoterm in relation to exports to your target country.

Export payment options

There are several payment options you can use depending on the nature and size of your deal. You can:

  • Ask for payment upfront. This removes the risk of non-payment but your customer must be prepared to take the risk of non-delivery or goods damaged in transit. Most customers will not be prepared to take this risk.
  • Sell on open account, as you do here. You should investigate how long local payment periods are and the risk profile in that country generally. In some countries, payment periods can be significantly longer than is normal in the UK, leaving you with a potential cash flow problem. Check which information is publicly available in that country.
  • Use a letter of credit or a bill of exchange. While there are several variations on this theme, these generally help to reduce your risk and can also help improve your cash flow, but will involve bank charges.

Insurance

When selling to overseas customers, consider export insurance. If you are exporting capital, goods or services, you may be eligible for cover from UK Export Finance. You can read a guide to UK Export Finance or visit their website.

You can use credit financing to ensure you get paid as soon as the contract is delivered and take out lines of credit to cover series of contracts, not just one.

Other options include arranging insurance privately through an insurance broker or using a 'forfaiting' company that will both finance your exports (by advancing payment against your invoice) and cover you against late payment or default.

Exchange rate risk

Take steps to protect yourself against exchange rate risk. Typically, this might be by agreeing the contract in pounds sterling or by arranging a currency 'hedge' (or possibly a currency option) with your bank.

Monitoring debtors

Once you have started trading, keep your eye on your debtors - query immediately any deviation from normal trading patterns (eg order levels, delivery, settlement, etc), and consider monitoring filings at public registries in countries where your debtors are registered for signs they are in trouble.

If in doubt, take legal advice.