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Read John Tozzi's excellent article over at BusinessWeek:
Other business owners might sour on exporting after what happened to David Old. His company (Old Wood LLC), a 15-employee wood flooring producer (pictured) in Las Vegas, N.M., had completed a $130,000 order for a new theater floor for a customer in Seoul, South Korea, in 2008. The buyer paid a deposit up front, passed a credit check, and made the first two payments on time. But the final payment of $40,000, due after the financial crisis began that fall, never arrived.
The Biggest Roadblock to Upping Exports
Posted by: Laurel Delaney, The Global Small Business Blog
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3 comments:
Needless to say, had the exporter established insurance on foreign receivables (such as through Ex-Im Bank), he would have recovered the final payment.
Laurel, i read your chapter on "Methods of Payment." Very good information. I am surprised, however, in your example with the German company that placed a $6000 order, that you actually booked the order with the manufacturer BEFORE you had acceptably negociated and confirmed L/C.
Brando -- thank you for writing. Your comment with respect to Old Wood LLC losing the final funds on its export transaction is in line with my comment at the BusinessWweek website (http://tinyurl.com/yff485b -- Dennis's comment is spot-on too).
Regarding the "Method of Payment" chapter from my book, "Start & Run a Profitable Exporting Business (http://tinyurl.com/mo8r7p)," the exercise I shared was a powerful learning lesson on what NOT to do on export transactions that are financed by an Irrevocable Letter of Credit. Go back and read it again because it states at the very end of the example:
"I learned a great deal from this transaction. Agree on the terms of payment in advance, and never, ever sell on open account to a brand new customer. No ifs, ands, or buts. Just don't."
Further, always comply and abide by the terms and conditions negotiated upfront on an L/C. If you ignore even one of the tiniest of details concerning meeting the terms/conditions, it's more than likely you will NOT get paid on the transaction. Exceptions are that you know the customer very well and they will accommodate your request to alter the L/C (difficult to accomplish).
Consult with an international banker to ensure you can realistically proceed with business and be guaranteed payment on the export sale.
Regards,
Laurel
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