Getting Paid: How To Reduce Risk & Secure Payments From Buyers Overseas

Any sale is a gift until you get paid.  But exporters are especially concerned, since their buyers might be 10,000 miles away!

So, understanding the four basic ways to get paid for an international order is important.  The method you select will affect the risk you bear, the size of orders you might be able to get, and the financing you might require to fill the order.

The following are the methods of payment for the exporter, from the most to the least secure:

Cash-in-advance: New exporters frequently request this method. Their attitude typically is, “I don’t know you very well but, if you send me the money, I’ll send you the goods.”

  • Advantage: The exporter gets paid before the shipment leaves the U.S. If cash is received prior to production, the exporter will not need additional working capital.
  • Buyer’s Perspective: It is high risk. The money is gone with only the exporter’s promise to deliver.
  • Drawback: It limits the exporter’s sales potential since it ties up the importer’s cash; can be a very non-competitive payment method if other suppliers are offering similar products or services.

Letter-of-credit: Letters of credit (L/C) substitute the creditworthiness of the importer and exporter with that of their respective banks.

  • Advantage:  The exporter will be paid if the terms and conditions of the L/C are met.
  • Buyer’s Perspective: The funds won’t be released until shipment is made and terms met, but L/Cs can be expensive to open.
  • Drawback: There are fees associated with opening and amending L/Cs; the importer’s cash is tied-up since cash or other assets need to collateralize the L/C, which in turn might reduce the order size. The exporter still might need additional working capital to produce the product or service, since L/Cs will not pay prior to shipment/performance.

Documentary collections: This method uses the banking system for the exporter to send the necessary documents associated with the order to the importer.

  • Advantage: The documents and goods are not released until importer pays or agrees to pay at some future date. If the buyer refuses to accept the documents and goods, the exporter retains title to the goods and can sell them to a third party or bring them back to the U.S.
  • Buyer’s perspective: Payment is delayed until goods are delivered, freeing up the importer’s cash until delivery.
  • Drawback: No guaranty of payment, since the banks only act as intermediaries. The exporter will need to finance the production cycle, the shipment time, plus a longer period if the importer agrees to pay at a later date, until final payment is received.

Open account: Open account terms for international sales are similar to domestic open account sales. The buyer agrees to pay in a set number of days—typically 30, 60, or 90—from the invoice, shipment or delivery date.

  • Advantage: More competitive terms which can help secure larger orders.
  • Buyer’s perspective: May allow the buyer time to sell the goods prior to payment; does not tie up importer’s cash.
  • Drawback: The goods are gone and the buyer might not pay. This risk can be greatly reduced by obtaining credit insurance from the Export-Import Bank of the U.S. on the foreign accounts receivable. Cost can be minimal, viz. about 65 cents per $100 of the invoiced amount for a policy that provides 95 percent coverage (Visit: for details).

In addition, the exporter will need working capital both for pre-shipment or production costs and the post-shipment cost of carrying foreign accounts receivable.

Knowing the advantages and drawbacks to each method of payment can help to better prepare you for negotiating payment terms with your potential overseas customers. More details and support on these and other trade financing issues can be obtained by contacting one of SBA’s trade finance specialists in 20 U.S. Export Assistance Centers around the country. For a directory, visit:

Eileen Sánchez is an official at the U.S. Small Business Administration (SBA) and a contributor to the SBA blog at

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