“Yes, we export boxed beef,” he replied.
“How do you get paid?” I probed.
“Cash,” was his short answer.
In my experience, most exporters use all or most of the various payment methods: cash, letters of credit, documentary collections, and open account. Industry and market conditions often dictate the choice. When asking the question, “How do you get paid?” I expect answers such as: “We get paid by cash when selling to countries A and B, letters of credit in country C, and open account to our established distributors in countries D and E.”
My fellow passenger’s short answer caught me off-guard because I expected a more elaborate response.
“Cash?” I asked. “Don’t you ever ship on a letter of credit?”
“No way,” he said with conviction. “If I can’t collect payment on a letter of credit, I’m not swimming after the boat to get our goods back.”
The controller implemented a hard and fast credit policy. One has to admire the quality of the company’s foreign receivables. The finance executive slept well at night and never had to inform his president of a slow paying overseas customer. However, one has to wonder if the cash-only policy didn’t limit the company’s ability to expand markets when export shipping. I’m sure the company had competitors that offered more lenient and flexible terms.
Indeed, competing involves more than just pricing. Payment terms often dictate the success of an overseas sale. The more payment terms a company offers, the more competitive it becomes in a fiercely competitive global trade marketplace.