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Getting paid: Understanding export transactions

Explore various methods of payment and decide which is right for you.

Cash in Advance

Receiving payment prior to shipping may be an optimal situation for you, because the risk of non-payment disappears and you add to your working capital. However, this is an insecure transaction for the foreign buyer, so finding one who is willing to pay up front is rare. Your buyer may consider prepaying a portion, in the case of a custom or special order.

Letter of Credit ↑ top of page

A letter of credit is a secure transaction for you and your buyer. You are both required to set up the transaction through the international banking division of your respective banks. You receive payment directly from your bank, once all pre-determined conditions are met.

Documentary Credit ↑ top of page

A documentary credit allows you to receive payment when you present the draft to your bank. Sight drafts allow for full payment on presentation, while term documentary credits call for payments over terms (varied number of days).

Documentary Collection ↑ top of page

In a documentary collection, you ship goods to your customer and send the shipping documents to a collecting bank. When your customer pays the bank, the bank turns over the documents. You then collect payment from the bank. This can be slightly risky, as the bank can't guarantee that your buyer will complete the transaction.

Open Account ↑ top of page

In an open account, you ship your goods and documents to your buyer before any form of payment is made. Open accounts generally call for payment over longer time periods (sometimes in excess of 90 days). An open account is an insecure transaction, as you will be taking on the credit risk of your buyer. Your buyer's reliability is of utmost importance in this situation.

Consignment ↑ top of page

Similar to an open account, with consignment, you take on a great deal of risk by shipping your goods to a buyer prior to receiving payment. In this case, however, the ownership of the goods remains with you until the goods are sold. This situation can benefit you, if you have a buyer that is reliable or if the domestic market for your product is slow.

Export Transaction Insurance ↑ top of page

You can hold up your end of the bargain, but will your foreign purchaser? Export insurance can protect you from the possibility that your buyer is unable to pay. Check out our resources for more information on export insurance.

• Insurance solutions
  
  http://www.canadabusiness.ca/eng/summary/1582/
  Applies to: All of Canada
  Find export-related insurance that can lessen the risks of doing business overseas and help you increase your working capital.

More Information on Export Transactions ↑ top of page

Looking for more information on export transactions? Check out chapter 8 of the Step-by-Step Guide to Exporting.

• Step-by-Step Guide to Exporting
  
  http://www.tradecommissioner.gc.ca/eng/guide-exporting.jsp
  This guide covers what you need to know about exporting, including international market research, export planning, marketing, finances, logistics and legal aspects.
• Options and Credit Practices in Export Financing
  
  http://www.bdc.ca/en/advice_centre/articles/Pages/export_financing.aspx
  Learn the options that can help manage your financial risks, when dealing with international buyers.