What Method of Payment to Choose for Imports
One of the most important things to negotiate before closing on an import sale is how payment will be made.
Many circumstances and priorities will influence your choice of payment method. A lot will depend on how much you know about financing a sale and how willing your supplier is to accept your terms and conditions.
Factors to Consider in Choosing a Method of Payment
- Your Cash Flow Availability and Needs: Can you afford to pay right away or do you need terms (30, 60, or 90 days, for example)?
- Your Relationship With Your Supplier: How strong is your relationship with your supplier? Will they be willing to negotiate terms that are a win-win for both parties? After all, you both need to make money in the sale.
- The Economic Conditions in the Country From Which You Are Importing: Is money flowing easily in and out of the country you are importing from? If conditions are tough, what's the workaround? Perhaps you should consider countertrade, bartering, or consignment.
- Interest Rates and Currency Adjustment Factors: If you are dealing in U.S. dollars, this might not affect you, but if you are dealing in large order volume with likely repeat business, and the currency you select is highly volatile, it can impact your profitability. Many suppliers (and importers, too) don't factor the currency market into their decision-making process, and that's not correct because if they did, they might end up getting more for the same money. Consult with your banker to see if there is a better way to handle the currency fluctuations.
- Type of Product: Is it in big demand where you are about to sell it? If so, your supplier might be willing to be more flexible with payment terms.
- Your Supplier's Creditworthiness: If your supplier's credit is poor, you will suffer for it because their terms will be extreme, to the tune of insisting on payment in advance or upon delivery. Find another supplier! You don't want to be on pins and needles every time you place an order, never knowing if your supplier will still be in business, let alone what their next payment term will be.
- The Terms Your Competitors Are Offering: Do your homework. Find out what other competing firms are offering when it comes to payment terms.
- Your Supplier's Demands: How far are you willing to go when the supplier puts extreme demands on you? Is there an alternative source of supply who might be more willing to meet your needs?
- The Urgency of the Transaction: Are you under time constraints? No one ever negotiates good payment terms under pressure. If you are in an out-of-stock situation and need merchandise as soon as possible, be willing to pay the price for your supplier to hop to it and get the goods to you promptly.
Whatever terms of payment you negotiate, you must always make sure they are understood by all parties, and have your supplier sign a document that indicates acceptance, such as the proforma invoice. This prevents some unpleasant surprises later on and reduces your shipment liability exposure.