Short handbook of international methods of payment
As we already mentioned in a previous article, expanding your business internationally would certainly be a huge opportunity to grow your company’s income, but at the same time, the project would result in a quite complex operation.
It is a choice to make after thoroughly considering all of the legal and contractual aspects which may differ considerably from country to country.
To support and guide you in choosing the best conditions for your business, here is a list of the five primary methods of payment for international transactions which are verified and approved by ITA (International Trade Administration).
It occurs when a buyer (importer) issues the payment, in the agreed currency and means of payment, before the goods have been sent or even manufactured. Upon payment receipt, the seller (exporter) will be in charge of shipping the goods and all the related documentation to the buyer.
This payment method takes place when the seller dispatches the goods and all the relevant documentation directly to the buyer who undertakes to pay the bill at a future date (usually 30, 60 or 90 days).
Consignment is a variation of open account in which the importer sends the payment to the exporter only after the goods have been fully sold by the foreign distributor to the end customer.
A documentary collection (D/C) is a transaction whereby the exporter entrusts the collection of the payment to its bank (remitting bank) which then sends all the transaction documents to the importer’s bank (collecting bank) containing all the instructions for the payment.
Letter of Credit
It is the most secure instrument for international traders, and it is widely utilized among the USA, Canada, and EU because the whole transaction is carried out by banks on behalf of both the buyer and the seller. So the whole process is guaranteed and protected by financial institutions, and neither the importer nor the exporter has a direct role in it. More specifically, an L/C is issued by a bank at the buyer’s request in favor of the seller. Payment will be made to the exporter, provided that the product specifications and the buyer’s terms and conditions have been met. The exporter must send shipping documents (i.e. commercial invoice, transport document, certificate of origin, insurance, bill of lading or air waybill) to the bank which will check compliance with the letter of credit conditions. When the L/C is irrevocable, it’s extremely important that the seller gives detailed guidelines to the buyer regarding the conditions to set in the L/C text. The exporter/seller also has the possibility to ask for the importer’s bank confirmation of the L/C issuance.
Precautions to Take
Obviously, each one of these five methods can be risky for one part or the other.
The advice that we would like to give is to always keep in mind that entrusting a solid bank system is the only way to have the situation under control during the whole process and to reduce the risks for both parts.
Also, this list is only a primary classification: different methods can be combined with each other to minimize all the possible risks for all the actors involved.
Should you wish to learn more about this topic, feel free to contact our firm: we will offer any assistance we can.
The key role of CPAs in the internationalization planning
If you have been considering to go international with your company or to invest in real estate you are definitely embracing a great business growth opportunity. A thorough and serious evaluation is necessary, though.
Investing in other countries can bring great satisfactions, but you need to have the right information and support. Improvisation is not an option.
SMEs are the backbone of the economy, their know-how and expertise base is utterly high-quality, but they often lack the necessary organizational skills to cross national borders.
A consultant who can provide guidance and support, especially with the legal framework, becomes a key figure.
The role of a CPA in an internationalization project is, then, of great importance and is crucial for the project to become successful: from the feasibility study to pre-startup checks to the business plan and operations.
The choice of the firm has to follow specific criteria which will help have a better insight of how performing its role will be during the internationalization process.
MARKET AWARENESS: hiring a firm with branches located in the country of interest or which partners with an international network of professionals is crucial. Besides ensuring a high level of competency about the fiscal framework and managing accounting and finance in two different languages, it also prevents from having any cultural gap-related issue.
EXPERTISE: the chosen firm must be able to offer specific and customized solutions, created on the needs of each single client. The entitled CPA is in charge of creating strategies aimed at analyzing all the costs and suggesting all the necessary technology and procedures that would maximize the outcome and allow the client to best adapt to the new markets he/she wishes to address.
COLLABORATION: mutual trust is key in the relationship between a firm and its clients. It is the only factor for a performing and effective work between the two. It is the consulting firm’s job to always find solutions in the client’s interest to help achieve all of the set goals.
A professional firm long-term goal is to establish a lasting collaboration with every single client and to be of support for his/her business.
COMMUNICATION: a clear, simple and honest communication allows both parts to be in complete accordance. The client states what his/her business goals are. The CPA explains the methods and the process schedule to achieve them. Good communication helps dispel the doubts and avoid any possible misunderstanding.
Given the importance of a CPA role, it is essential to pay close attention to select the right one: the support she/he will be able to provide will make all the difference for a successful or unsuccessful internationalization process.
Our firm is at your total disposal for any further information you may require.
Attending international trade fairs is a crucial part of your business internationalization project.
In the era of Internet and new technologies, international trade fairs are still an important opportunity for all those SMEs planning to access new markets.
These companies’ size or budget does not often allow them to create an international sales network, so they can benefit from the potential that international events can offer:
Promote their products or services
Promote their brand or corporate image
Interact directly with all the market participants they are targeting (potential customers, competitors, new business partners for future collaboration)
Maintain and cultivate relationships with potential local customers
Conduct market research. Meeting face-to-face with customers helps shape a better idea of what their needs and issues might be.
The benefits are, therefore, several.
However, it is important to plan thoroughly and well ahead of time your company’s participation in this type of events and consider all of the following aspects:
Once you know what trade show you wish to attend, initially become familiar with it as a visitor: this allows you to understand if the event is actually appropriate to your industry sector, your company’s products or services and the market you are planning to reach. It is also recommended to read over the catalog of previous exhibitions to find out which exhibitors might participate next time.
Set the goals you want to achieve (strengthen corporate image, promoting new products, close sales).
Select the products to showcase.
Prepare all the promotional and informational material (brochures, catalogs, technical documentation, gadgets, etc.).
Handle the logistics for all the people, products and promotional material that will have to be at the event (airline tickets, hotels, transport of the goods).
Prepare the CIF price lists for all main destinations.
Gather the necessary information regarding the bureaucratic and customs formalities required to import the products into the country that will host the event.
Launch a pre-event promotional campaign to announce as many contacts as possible you will be attending the event. Also, send out invitations to inform them about any special offers they will be able to benefit from (free tickets, press releases, appear on industry periodicals ads).
Follow-up actions. Actively stay in touch with your visitors and evaluate any possible improvements for your products’ marketing.
To recap, international fairs are an excellent channel for your business internationalization and an important opportunity many SMEs can benefit from, but they need to be part of a wider strategy addressing your entire company and its long-term business goals.