Getting Paid

Obtaining payment for goods rarely takes place at the same time as the contract of sale. In an international transaction it usual to offer short-term credit of 30 – 90 days which can affect cash-flow. Choosing the right payment term requires an assessment of risk, adequate credit insurance and an appropriate payment term for you and your customer. If you need any further information about Getting Paid our trade advisers will be pleased to help.

Payment Options:

• Documentary Letters of Credit
  A Documentary Letter of Credit (L/C) is an undertaking by a bank to make payment to a named beneficiary (usually the exporter) against specified documents, within a stated time. Most L/C’s are Irrevocable and cannot be altered without the consent of both parties. A ‘Confirmed’ L/C is the most secure, where the undertaking to pay is provided by a bank in the UK.

Letter of Credit Rules:

• Uniform Customs and Practice No 500 (UCP500 & eUCP500)
  These rules are issued by the International Chamber of Commerce (ICC) and provide a uniform set of rules for the operation of Letters of Credits. L/C’s should always state that they are subject to UCP 500. These rules will apply in addition to the terms of the L/C. The supplementary eUCP 500 provides rules for the electronic presentation of documents. These publications are available from the ICC bookshop.
• Uniform Customs and Practice No 600 (UCP600)
  The ICC are currently reviewing the UCP 500 rules and a new set of guidelines, UCP 600 will be published in October 2006. These new rules will come into effect from 1 July 2007 and will make important changes to some terminology and definitions and aim to reflect more current trade practices.
• Bills of Exchange / Draft
  A Bill of Exchange is an order by the creditor (usually the exporter) to the debtor (the buyer) to pay a debt. A Bill of Exchange is often accompanied by commercial documents, which are presented by a bank and released to the buyer either against immediate payment (at sight) or against a signature for payment on a specified future date.
  
  Bill of Exchange Rules:
  • Uniform Customs and Practice: Rules of Collection UCP 522
    These rules are issued by the International Chamber of Commerce (ICC) and provide a uniform set of rules for the operation of Bills of Exchange including sight payment and acceptance terms. As well as acting as a debt collector the bank has responsibilities under UCP 522 regarding protest, case-of-need and actions to protect the goods in the event of non-payment or refusal to accept.
• Discounting Bills of Exchange:
  Discounting is when a bank purchases the future amount due under a Bill of Exchange at a discounted value. The bank pays the exporter the face value of the Bill less the discount fee. This gives the exporter an immediate payment at a lesser value as an alternative to waiting for full value payment at the later due date.  Discounting may be arranged with or without recourse.
• Factoring Invoices
  Factoring involves selling your invoices to a third party called a factoring company. It is often used to improve cashflow and can offer credit insurance. Factoring international sales invoices involves working with a partner abroad who is responsible for the collection of payment in the country to which you export. The services of a local agent will prevent any problems that could arise because of differences in laws, customs and language.
• Open Account
  This provides the least secure payment for the Exporter and is generally used for customers with a low credit risk. The goods and documents are despatched directly to the buyer for payment at the agreed time.
• Payment In Advance
  Payment in advance provides is the least desirable for the buyer as payment is made before goods or documents are despatched. This payment term is suitable for new customers or those with a high credit risk.
• Export Credit Insurance
  Export credit insurance provides protection against the risk of non-payment by your overseas buyer. You can obtain a credit check for each of your customers enabling you to sell on credit terms agreed with the insurer. 
  • Consumer Goods: British Insurance Brokers' Association
    If you export consumer goods on payment terms of less than two years you will need to get a quote from a private credit insurer.The British Insurance Brokers’ Association has a list of brokers who specialise in export credit insurance.
  • Capital Goods: Export Credits Guarantee Department (ECGD)
    ECGD is the UK’s official export credit agency, which may be able to provide cover for your business if you supply capital goods or services with payment terms of two years or more.

General Information

• SITPRO (Simplified International Trade Procedures) Trade Briefings
  SITPRO is dedicated to simplifying trade procedures and produces briefings on topics including Letters of Credit, payment options and managing risk.
• Getting Paid When Selling Overseas
  Business Link is the government gateway to business support. This guide to getting paid overseas covers assessing your customer’s risk, payment options and credit insurance against non-payment.
• Methods of Payment in International Trade
  This SITPRO briefing outlines the various options available in making and receiving international payments. It explains each of the different methods and outlines the risks involved for each

Letters of Credit:

• Letters of Credit: An Introduction
  This SITPRO briefing explains what a L/C is, the parties involved in a L/C transaction, what types of L/C are available and when they should be used.
• Letters of Credit: Best Practice
  This SITPRO briefing provides a simple best practice guide for the operation of a L/C. It covers L/C negotiation, checking the L/C on receipt, documentation requirements and what to do if a L/C is rejected.
• Letter of Credit: Checklist
  This SITPRO checklist is designed to reduce unnecessary discrepancies and minimise costs and risk associated with L/C transactions.

Factoring:

• Debt Factoring and Invoice Discounting: The Basics
  In depth Business Link information on all aspects of factoring, including advantages and disadvantages, the cost of factoring and choosing a factor.
• Factors and Discounters Association website
  This website contains a list of factors – third-parties – who take on the responsibility of collecting your short-term debt.
• Factoring UK
  Website providing free independent advice on factoring and invoice discounting.

Export Credit Insurance:

• Managing the risks of International Trade
  This SITPRO briefing explains how to manage the risks of international trade, including customer risk, country risk and credit risk and how to manage them.

Key:

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