How can you ensure timely payment from international partners?

Tech advancements in trade finance, like blockchain and AI, minimize the need for conventional payment terms. Blockchain streamlines transactions with smart contracts, reducing reliance on letters of credit. Digital platforms and fintech solutions expedite transactions and offer alternative financing, lessening the need for advance payments. AI enhances credit scoring, securing open account transactions. These innovations offer a competitive edge by lowering risks, cutting costs, and speeding up global trade.

Bill of lading for products and goods. International letter of credit for any other matter. The bill of lading and/or letter of credit should be drawn on a bank in a safe country, i.e., a Dutch, British, American or Swiss bank, for example; not for example, an Iranian bank. The three laws of international trade are money first, money first, and money first. The corollary is money first. Also, for any complex transaction, hire an international business lawyer. International trade is not for amateurs.

Letters of Credit are often seen as a guarantee that the exporter will get paid, however this is not always the case. The exporter must produce the documents required for payment under the Letter of Credit. What could possibly go wrong? Is the letter of Credit operational? I.e. does the exporter expect to be able to produce docs to get paid? Are the dates acceptable, is the commodity correct, is the price correct, is the total value correct, are there any special conditions that need to be complied with? This is just the first in a long list of potential pitfalls. Any payment mechanism needs to be fully understood. The risks weighed up and the costs known in advance. Experts in this subject tend to be worth their weight in gold!

For banks, payments are just another service and they are pretty much just reactive to your wishes. Partnering with a currency brokerage gives you a lot more flexibility, communication, proactivity and probably most importantly better rates of exchange and reduced or no transfer fees. When choosing a brokerage make sure they have the relevant certificates and credentials and can operate in the areas you are looking to work in. Security and trust are initially the most important aspects of building a relationship, as that relationship grows, trust is a given then it is all about how proactive you are with them and how much they can save in money and time for all of your payments.

When reading payment terms in a contract, it is essential to understand them from various points of view. The terms might make sense when looking from your point of view but will they be understood in the same way by your counterparty. Documents required should be clearly detailed, timing must be clearly established and based on mutually agreed points. Never assume that your understanding is the same as other people's, when in doubt pick up the phone and ask. When negotiating a contract, this can be a friendly chat. When trying to clarify after a dispute has arisen, this will usually involve lawyers and a judge. Pick up the phone!

Working with the client is very important, the single biggest issue is trust, if you are using a currency broker make sure their system automatically emails you at each stage, trade booked, incoming payment received, outgoing payment sent and most importantly an email going to your client informing them that the payment is on its way. For incoming payments you should expect the same from your clients, it is possible to sign them up to your currency provider to receive the payments and again you would be fully aware of where the payment chain is at.

For those on tight margins it is imperative that planning is put in place to mitigate currency volatility. For too long companies have been working solely with their banks and in most cases this can only be done on a reactive basis, basically I have an invoice to pay and the bank takes the money out of account and pays it, but you need to be more proactive, as soon as an order is placed, you will know how much currency you need to buy, you will probably know the lead time for payment and so a forward contract could be put in place and you will know exactly how much it is going to cost you in your local currency so that you are able to budget and plan. Proactive not reactive is the key word.

Establish and build relationships with all your counterparties, service providers and vendors. It is simple to go for a coffee, a beer or a lunch with anyone you work with. This builds up a level of mutual confidence and trust. When disputes arise (which they always do), it is the difference between calling a friend to settle a minor issue or appointing lawyers to litigate a matter between people who have never met. Take the time to work on those relationships in advance, it is never to early, it is often too late!