Once you have determined the market you want to penetrate, have found in-country suppliers, and have connected with potential clients, the next step is to establish your payment processes. After all, you do not want to have completed all this work, only to not get paid.
Risk and Payment Insurance
Your first stop should be to a financial agency that provides risk and payment insurance. In Canada this can be done through Export Development Canada www.edc.ca.
EDC offers a range of insurance packages and policies that protect Canadian businesses conducting business internationally. These insurance policies cover both account receivables and unpaid exports. Each export needs to be insured and pass EDC’s risk assessment analysis. Their Accounts Receivable Insurance on economic and political risks in the short-term and is offered with shipments, contracts, or services. EDC will tailor their programs to meet your specific needs. You cannot back insure exports, so before you venture out internationally set up a meeting with your local EDC account manager and begin developing a working relationship.
Canadian chartered banks provide a range of international business/financial services; from international payments services, to foreign exchange currency transactions and letters of credit. Contact your bank before entering an international market and find out the services they can offer you.
There are also a number of businesses that offer forfaiting and factoring for cash flow management, foreign exchange transfers, and other cash and payment services; should you require these services. Ask your network for recommendations of businesses providing these services.
Minimization of Risk
In international business there is, by definition, a physical distance between the buyer and the seller. Their distance results in an inherent risk for both sides; often as a result of the buyer and seller having not met one another and to develop a business relationship. Therefore, both parties have the minimization of risk at the top of mind. The buyer wants to make sure they received the goods on time, in the quantity ordered, and the quality agreed to. The seller wants to make sure they get paid.
There are a variety of ways to make and receive payments for international sales. The following is a short list of the most used payment options, but it is advisable to work with your financial institution to set up these options:
- Cash Advance
- Letter of Credit or Documentary Credit
- Document Against Payment/Bill of Exchange
- Open Account
- EDC: Insurance Solutions
- EDC: Financial Services
- EDC: Finance your International Sales
- EDC: Managing Foreign Exchange Risk
All chartered banks have sections on international trade payment options on their web sites. Here are a few of the major Canadian financial institutions:
- Bank of Montreal
- Hong Kong Bank
- National Bank of Canada
- RBC Royal Bank
- TD Canada Trust Bank