General

With the intensification of market competition, buyers' appetite is increasing and they are gradually no longer satisfied with the prices and product support provided by sellers, but shift their focus to financial support. In this way, there have also been many customers who are trying to expand their business with the help of seller funds by using empty handed tactics. Therefore, special foreign trade payment methods have emerged.

For suppliers, special foreign trade payment methods are something that people both love and hate. Not providing them to customers may not be able to accept orders, but providing them can cause financial pressure or increase potential risks. My personal opinion 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, it will not hurt one's bones. In these cases, the special foreign trade payment method requested by customers does not necessarily mean a flood. So, 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 FOR SHIPMENT and L/C AT SIGHT. There are several types of payment methods that I have been familiar with:

1.T/T AGAINST B/L COPY。

2.LC XX DAYS.

3.OA XX DAYS。

1、 Payment upon presentation of a copy of the bill of lading

At present, this foreign trade payment method has gradually been implemented as "pre arrival payment". The commonly used statement by buyers when convincing sellers to accept this payment method is: "Don't worry! I can't get the bill of lading in your hands, so what else do you need to worry about?" However, let's first recognize the potential risks of this payment method:

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

2. Some destination ports cannot accept return shipments.

3. If there are any costs incurred at the destination port when the return shipment is confirmed, this cost will be borne by the seller.

4. In some destination ports, if goods are stacked for a certain period of time and not picked up, returns are no longer allowed, and mandatory auctions will be conducted.

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

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

The six major terms may seem quite risky, but they are all based on a prerequisite condition of "buyer refusal to pay". Therefore, in general, for such payment methods, we usually do the following preparations:

1. Conduct multiple assessments of the customer's credit status, such as requesting and analyzing the customer's financial report, understanding the supply chain's risk assessment of the customer, and providing such payment methods after working with the customer for a period of time.

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

3. Try to 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 one's own freight forwarder are two different concepts, as some customers may 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, this situation is almost no different from FOB in risk control. The reason why it is recommended to use one's own freight forwarder as much as possible is because when using a buyer's freight forwarder, the freight forwarder may recklessly release the order to the buyer in advance, which is actually very simple.

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

2、 Usance letter of credit

The risk of L/C does not lie in forward or sight, but in the L/C itself, because the impact of forward or not on sellers lies in capital pressure, which can be solved by financial means such as "forfaiting". I have a senior documentary friend who once said, "There is no letter of credit that cannot find any discrepancies." I cannot test its accuracy and rigor, but it is true that there are often soft clauses in letters of credit that can catch sellers off guard, such as:

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

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

3. The letter of credit requires a third-party inspection report, but it cannot be issued in the end.

All of these soft terms are a test for sellers' ability to review orders. It is recommended to:

1. Before the buyer issues the original letter of credit, it is required to send a draft of the letter of credit for confirmation by the seller.

2. Minimize the presence of discrepancies as much as possible. There is a risk of refusal to pay, and the important thing is that every discrepancy is money.

In addition, during my time in foreign trade sales, some countries or banks with poor credit ratings issued letters of credit, such as Venezuela, which the company did not accept. I don't know if this approach can still keep up with the times, for sellers to consider for themselves!

3、 OA, OPEN ACCOUNT

For some countries, OA has almost become a necessary payment method for foreign trade, as the entire business chain of the country is operated through CREDIT. Consumers use credit cards to make installment payments, and distributors pressure upstream funds. Importers will inevitably have to transfer this financial pressure to exporters. I believe that all enterprises nowadays, as long as they export through OA payment methods, will inevitably have China Export&Credit Insurance Corporation's intervention, refusing to pay 80% compensation, and not paying 90% compensation. This seemingly high-risk payment method actually does not have that much risk, except for financial pressure:

The risk of OA does not lie after shipment, but before shipment. Because 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 work, OA, which does not collect deposits, 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 China Export&Credit Insurance Corporation unless absolutely necessary, as this will affect the insurance premiums of all subsequent orders from the seller.

3. Sinosure has strict restrictions on the SHIPPER, CONSIGNEE, and payer of OA. If there must be inconsistency between CONSIGNEE and the insurer, it is necessary to inform Sinosure in advance, otherwise there may be situations of non underwriting. This situation is actually very common, for example, if the underwriting entity is in Mexico, but due to certain tax avoidance needs, CONSIGNEE and the payment company are in the United States, then either prove that the US company is a subsidiary of the Mexican company, or declare in the contract that the payment will be made by the US company, otherwise the Mexican company will bear all payment responsibilities, otherwise there is a high possibility of trouble.

Finally, let me briefly explain an E-CREDIT that I have never been exposed to before. It is a financial solution launched by OneConnect. Baidu "e-credit" can see a post written by "Tinboos" on Forbes about this, and I will not comment on it.

Except for the payment method of 100% deposit, almost all payment methods have risks of one kind or another, but business is not just about not doing it, because some customers cannot do it without special payment terms. Therefore, for supplier owners, the main consideration is to consider financial pressure, the degree of demand for orders, order profits, and whether potential risks can be borne.

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