General

With the intensification of market competition, buyers have an increasing appetite, and gradually they are no longer satisfied with the price and product support provided by sellers, but shift their attention to financial support. In this way, there have also been many customers who are trying to expand their business by using the seller's funds. Therefore, special payment methods have emerged as the times require.

For suppliers, special foreign trade payment methods are something that people love and hate. Failure to provide them to customers may prevent them from placing orders, but providing them can cause financial pressure or increase potential risks. My personal view is that there is no business without risks in the world, only unattractive profits. As long as the risks are within a controllable range, as long as the profits are attractive enough, and even if losses occur, they will not hurt your muscles and bones. In these circumstances, the special foreign trade payment methods required by customers do not mean a flood of water and beasts of prey. Therefore, today we will talk about the risk control of this special foreign trade payment method.

The so-called special payment terms refer to all foreign trade payment methods other than T/T BEFORE SHIPMENT and L/C AT SIGHT. I have more contact with the following types:

1.T/T AGAINST B/L COPY。

2.LC XX DAYS.

3.OA XX DAYS。

1、 PAYMENT AT COPY OF BILL OF LADING

At present, this method of payment for foreign trade has gradually become "pre arrival payment". The phrase often used by buyers when persuading sellers to accept this payment method is, "Don't worry! I can't get the bill of lading in your hands, so what else should you worry about?" However, let's first recognize the potential risks of this payment method:

Once the customer refuses to pay, the seller has to bear the sea freight for the return journey.

2. Some destination ports cannot accept return shipments.

If it is determined that there will be any costs incurred at the destination port when the shipment is returned, this cost will be borne by the seller.

4. There are provisions in some destination ports that prohibit the return of goods if they are stacked for a certain period of time and not picked up, and that forced auctions will be conducted.

The freight forwarder may privately release the order to the buyer without obtaining the seller's consent.

Some countries may only need a copy of the bill of lading to release the goods.

"The six items may seem risky, but they are all based on the precondition that the buyer refuses to pay. Therefore, in general, we do the following preparatory work for such payment methods:"

Investigate the customer's credit standing in multiple ways, such as requesting and analyzing the customer's financial reports, such as understanding the supply chain's risk assessment of the customer, such as providing such payment methods after working with the customer for a period of time.

2. Understand the rules and regulations of the destination port to see if there are any regulations that are detrimental to the seller.

3. Increase the proportion of payment before shipment as much as possible.

4. Try to collect sea freight before shipment.

5. Try to use your own freight forwarder. It should be noted that using CIF and using your own freight forwarder are two concepts, because some customers will recommend their freight forwarder to the seller on the grounds that the seller's freight forwarder price is too high, and the seller will directly contact and pay the freight forwarder. However, in fact, there is almost no difference between risk control and FOB in this situation. The reason why it is recommended to use your own freight forwarder as much as possible is that when using a buyer's freight forwarder, the freight forwarder may recklessly release the order to the buyer in advance. This operation is actually very simple.

If it is really necessary, let China Export&Credit Insurance Corporation intervene, even if it is not insured, and investigate the customer's credit status.

2、 Usance letter of credit

The risk of a letter of credit does not actually lie in forward or spot payment, but in the letter of credit itself, as the impact of forward payment on sellers lies in financial pressure, which can be resolved through financial means such as "forfaiting". A senior documentary friend of mine once said, "There is no letter of credit that cannot be found without discrepancies." This sentence is beyond my ability to investigate its accuracy and rigor, but it is true that there are often soft clauses in letters of credit that can surprise sellers, such as:

The letter of credit requires a shipowner's bill of lading, but in fact, only a freight forwarder's bill of lading can be issued.

2. The letter of credit requires FORM A, but actually only C/O.

The letter of credit requires a third-party inspection report, but ultimately it cannot be issued.

For all these reasons, these soft terms are a test of the seller's ability to review documents. It is recommended that:

Before the buyer issues the original letter of credit, it is required to issue a draft letter of credit for the seller's confirmation.

2. Minimize the presence of discrepancies. There is a risk of non payment. The important thing is that every discrepancy is money.

In addition, during my time in foreign trade sales, letters of credit issued by countries or banks with poor credit ratings, such as Venezuela, were not acceptable to the company. I don't know if this approach can still keep up with the times. Let's consider it for each seller!

3、 OA, OPEN ACCOUNT

For some countries, OA has almost become a necessary method of payment for foreign trade, because the entire country's business chain is operated through CREDIT. Consumers use credit cards to make installment payments, and dealers press upstream funds. Importers are bound to transfer this financial pressure to exporters. I believe that as long as all enterprises export through OA payment methods, there must be China Export&Credit Insurance Corporation's intervention, such as refusing to pay 80% of the compensation and not paying 90% of the compensation. This seemingly risky payment method actually does not pose such a significant risk, except for the financial pressure:

The risk of OA does not lie after shipment, but before shipment. "If the buyer cancels the order before shipment, the seller is not protected by China Export&Credit Insurance Corporation. Therefore, it is important to collect a certain percentage of the deposit. In the home appliance industry where I used to be, OA, which does not receive the deposit, has gradually faded out of the market, which is a good sign.".

2. In the case of being able to coordinate communication, try not to apply for compensation from Sinosure unless it is a last resort, as this will affect the insurance premiums of all subsequent orders from the seller.

"China Export&Credit Insurance Corporation has strict restrictions on the SHIPPER, CONSIGNEE, and payer of OA. If there must be a discrepancy between CONSIGNEE and the insurer, it is necessary to inform China Export&Credit Insurance Corporation in advance, otherwise non underwriting may occur.". This situation is actually very common. For example, if the underwriting entity is in Mexico, but for some purposes, such as tax avoidance, CONSIGNEE and the payment company are located in the United States, then either it is proven that the American company is a subsidiary of the Mexican company, or it is stated in the contract that the payment for the goods will be paid by the American company, otherwise the Mexican company will bear all the payment responsibilities, or there is a high risk of trouble.

Except for the payment method of 100% deposit, almost all payment methods have risks of one kind or another, but business is not necessarily stopped because some customers can't do it without special payment terms. Therefore, for supplier bosses, the main consideration is whether the financial pressure, the degree of demand for orders, order profits, and potential risks can be tolerated.

No matter how high a profit is, as long as no money is received, it is just a beautiful number in the financial report. Due to the nature of business, we cannot make risks disappear, but we can try to understand risks and control them. Robust management is more important than anything else. This is a kind hearted buyer's advice to all sellers.