Competitive Payment Terms When Exporting on New Online Platforms

Trade Financing Matters welcomes a guest post from Gary Mendell, President of Meridian Finance.

Amidst the business challenges we’re all facing this year, there are also opportunities for growth. The global recession is not affecting every sector of the economy. Many companies are growing, often by increasing their international sales. While overall exporting volume is lower than it could be, worldwide market demand for goods and services continues to engender a considerable amount of international trade . . . and even expansion in some sectors.

The U.S. economy is projected to remain relatively flat throughout this year and into 2015 before beginning to recover, but with just five percent of the world’s population and less than one-quarter of global GDP, the U.S. is not the only country with purchasing power. While all countries are linked to some degree by economic interdependence, different cultural, political, and market forces will lead Europe, Asia, Latin America, and other regions each on their own trajectory.

Growing numbers of business-to-business export transactions are taking place on new online platforms, some designed specifically to foster international trade and others whose mechanics just make doing business easier . . . whether domestically or across borders.

Whether you’re exporting along traditional avenues or using less-conventional electronic channels, your customers in other countries are not always going to want to pay cash-in-advance or with a letter of credit. Just like in the USA, creditworthy companies overseas expect to buy on open-account payment terms. Even more so because your goods may take 30 days or longer just to get there.

So you need to extend competitive credit terms to grow your international business. But what happens if you don’t get paid? Your foreign customers could go out of business or file bankruptcy, face currency devaluations or foreign exchange problems, run short on cash, take you for a ride, or fail to pay you for any number of other commercial or political reasons.

You can protect your foreign receivables against virtually all non-payment risks with an export credit insurance policy.

Export credit insurance enables you to offer competitive payment terms with confidence. Beyond simple risk mitigation, it’s a sales tool that can help you win more orders, penetrate new markets, negotiate larger order quantities, establish or expand distribution, and increase the profitability of your export business.

As your export business grows and you need to begin financing your receivables, the coverage will also make your foreign A/R more attractive to banks, factors, and other lenders so you can negotiate the most favorable advance rates and loan terms.

All of your foreign receivables can be covered under one multiple-buyer policy that assigns a credit limit for each customer or insures the credit decisions you make yourself based on your own experience.

Premium rates are a fraction of a percent of your covered export sales, less than the fees typically charged for letters of credit. In any case, whether or not you pass this incremental expense to your customers, the price is insignificant compared to the additional business you gain by extending competitive credit terms.

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