How do you get better payment terms from your import/export partners?

1 Know your options

Before you approach your import/export partners, it's important to know what payment methods are available and how they affect your risk and cash flow. Advance payment, for instance, requires you to receive the full payment before you ship the goods. This is the safest option for you, but the riskiest for your partner. Alternatively, a letter of credit reduces the risk for both parties, but involves fees and paperwork. Documentary collection is cheaper than a letter of credit, yet offers less security and control. Lastly, open account allows you to ship the goods and send the invoice to your partner who pays you after a certain period. This is the most convenient option for your partner, but the riskiest for you.

2 Assess your risks

Before you negotiate your payment terms, it's important to assess the risks involved in your import/export transactions. You should consider the country and market conditions of your partner, such as political stability, exchange rate fluctuations, inflation, and regulations. Additionally, you should do background checks on your partner's business history, financial records, and references. Furthermore, you should take into account the value, quality, and demand of your goods, as well as their perishability, durability, and warranty. The higher the value and the lower the demand of your goods, the more risk you face.

3 Prepare your proposal

Before you contact your partner, you should prepare your proposal for the payment terms that you want to achieve. Setting your goals and limits is essential, so you should be aware of your preferred payment method and terms, as well as the minimum acceptable terms that you are willing to accept. Additionally, it is important to have data and facts that support your proposal, such as market research, competitive advantage, delivery time, and quality standards. Lastly, anticipate your partner's objections and concerns by considering their cash flow needs, risk tolerance, trust level, and alternative options.

4 Communicate your proposal

When you are ready to negotiate with your partner, it is important to communicate your proposal in a clear, respectful, and persuasive manner. Choose the right time and channel, such as phone, email, or video call, depending on your partner's preference and availability. Additionally, explain the benefits and value of your proposal; emphasize how it can benefit both parties, such as by increasing sales, reducing costs, improving quality, or enhancing customer satisfaction. Furthermore, address your partner's objections and concerns by listening to their feedback and responding with empathy, honesty, and confidence. Offer some concessions or incentives to show your flexibility and goodwill, such as discounts, free samples, or faster delivery.

5 Confirm your agreement

Once you and your partner have reached a mutually satisfactory agreement, it is important to confirm it in writing and take the necessary actions. This includes drafting a contract that specifies the payment method and terms, as well as the roles and responsibilities of each party, the dispute resolution mechanism, and the force majeure clause. It is also important to execute and monitor the payment according to the agreed method and terms, keeping records and receipts of the payment, and communicating with your partner regularly. Additionally, you should evaluate the performance of the payment terms, collect feedback from your partner, identify strengths and weaknesses of the payment terms, and look for ways to improve them in the future.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?