Getting Paid and Financing

How do I get paid?
Payment terms are inevitably one of the negotiating points in any sales contract. Cash in advance is the easiest and safest for you. It is also the most risky for your customers, as they must instruct the bank to wire funds to your account before you ship. Dollar-denominated checks received by you in the mail will involve collection charges and possibly delays of up to several weeks if they are drawn on a bank in a foreign country. Letters of credit are a secure and flexible way of mitigating risks for both you and your customer and are a very common means of international payment.

Who can help me get export financing?
Talk to your banker about letters of credit or Export-Import Bank (http://www.exim.gov) financing. Letters of credit are similar to the sales contract between you and your foreign customer, except that the contract exists between your bank and your customer’s bank and is governed by a set of international rules. As a branch of the federal government, the Export-Import Banks loan, guarantee, and insurance programs are designed to help U.S. exporters finance their international sales. While there is no official minimum, transactions under $100,000 may not be worth the required paperwork.

For more information, contact your banker, or Export-Import Bank directly at its West Coast office in California (562-980-4580). Loans to finance export orders can be obtained through the Small Business Administration’s LowDoc loan program. Additionally, it offers International Trade Loans and can guarantee up to $1.25 million for a combination of fixed-asset financing and Export Working Capital Program assistance. For details, contact the Small Business Administration in Phoenix (602-745-7200).

What are the financial risks of doing business abroad?
There are three kinds of financial risks:

Commercial risks. Your foreign customers do not pay you, either because they do not have the funds or there is a contract dispute. Through insurance programs such as those offered by the Export-Import Bank of the United States, you can protect yourself against such risks.
Political and economic risks. Foreign governments have, from time to time, restricted or prohibited commercial payments due to economic downturn or political instability. Some companies elect to obtain insurance from the Export-Import Bank and a few private vendors to cover these kinds of risks.
Currency risks. This refers to the risk encountered if the exchange rate between the local currency and the U.S. dollar changes. To protect themselves from having to monitor international currency movements, many U.S. exporters keep their contracts and payment terms in U.S. dollars.