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    Most Popular Payment Methods For Exporters In Africa
    Updated On: 18 Nov 2021 | 163 Views

    Most Popular Payment Methods For Exporters In Africa

     

    The terms of payment in international trade must be discussed between the transacting parties before a sale can be completed. Whether as an importer or exporter, you have to consider the most convenient options to pay your suppliers in full or get paid in full.

    For an exporter to be successful in the global marketplace and thrive better than competitors, offering customers favorable sales terms and convenient payment methods should be a priority. 

    International payments usually involve complex processes with various options to consider termed as payment terms. The type of payment terms you pick will be a factor in increasing the value of your trading offer. Consider some of the payment methods discussed in this article to ease the processes of your international transactions.

    Letters Of Credit (L/C): Also called documentary credit, it is one of the most secure payment instruments available to international traders. It is a promise by a commercial bank on behalf of the buyer that payment will be made to the exporter, provided that all the terms and conditions outlined in the letter of credit are met. A Letter of Credit functions as a guarantee by the bank when there is not enough information about the buyer but the exporter trusts the creditworthiness of the buyer's international bank. This payment method is considered to be expensive because the banks will charge significant fees. These fees will vary depending on the importers’ credit score and the complexities of the transaction.

    Here are the steps for initiating a Letter of Credit with your bank:

    Terms of trade are established between an importer and exporter; a contract is negotiated and confirmed.

    The importer then applies for a Letter of Credit with their bank.

    The Letter of Credit is set up between the issuing bank and the exporter; the exporter’s bank (the receiving bank) is notified by the importer’s bank.

    The goods are then shipped and then verification of the shipments through the documents and terms of sale are provided by the exporter to his bank and the exporter's bank sends the documents to the importer’s issuing bank.

    Verification is completed and payment is issued to the exporter.

    The importer receives his goods.

    Cash-In-Advance: For international trade, credit cards and wire transfers are the most common cash-in advance. It is also called cash with order or advance payment. Exporters usually prefer this method because there is a lower risk of the buyer taking flight with their goods without making payment. 

    This payment option comes with greater risk to the importer and leaves him at the mercy of the exporter. This is because the importer has made full payment while the ownership of the goods is still held by the exporter and it can also present an unfavorable cash flow situation where you have let go of your liquid cash and have no means of getting it back without the goods in your possession. 

    This payment option is only available in a few scenarios like when the goods in question are in small quantities and most importers try to avoid this payment method. Instead, there might be variations to the advance payment method like providing options where the importer pays a percentage of the total amount and upon arrival pays the balance. 

    Because this payment method only favors the seller; that is the exporter in this case, if an exporter offers only this payment method, he is likely to lose business to other competitors that offer other payment methods that will favor the buyers (importers). 

    Documentary Collections: Similar to the Letter of Credit payment method, the Documentary Collection is a payment method that exposes both the importers and exporters to an almost equal amount of risk. The risk exposure, in this case, is balanced. 

    This payment method is between the importer and exporter banks and the process begins when the exporter ships the goods and lodges them with his bank. The importer as well lodges the payment sum with his bank with an order to make payment to the exporter upon receipt of the shipping documents. 

    This payment method is cheaper than the Letter of Credit payment method but is riskier as there is no provision for verification of the goods or documents sent by the exporter and very little recourse in a situation where a refund is needed. 

    There are two ways that this payment method is processed. 

    Documents against payment: No delay is expected in this payment method. Payment must be made to the exporter by the bank upon sighting the documents. 

    Documents against acceptance: Payment is not revived immediately here. The agreement here is that the documents will be delivered to the importer's bank once there is a contract on when full payment will be made. So the payment will happen after receipt of the documents on or before the agreed date. 

    Open Account: This payment method involves a trade deal where the exporter sends the goods to the buyer with an agreement that payment will be received at a future date; usually 30, 60, or 90 days in international sales. 

    This means that the importer receives the goods on credit and this leaves the exporter with all the payment risk. It saves the importer from being cash trapped as they can receive the goods and try to sell them off before the payment is due. 

    International buyers usually prefer exporters to extend this payment option to them so exporters that are reluctant with this extension of credit may lose business to other competitors. By following appropriate trade finance techniques, exporters can mitigate the risk of transacting a complete credit business. 

    Bottom Line

    International trade keeps expanding as globalization extends to all corners of the Earth and Africa is not left out. According to Florie Lisee, international trade is key to Africa’s Economic growth. 

    Countless opportunities for exports are available and one of the major inhibitions to trading outside Africa is finding a suitable payment method that is beneficial to both exporters and importers. 

    This guide is suitable with appropriate payment options that can be explored for your exports. 

    Valuehandlers Exports

    After sorting the issues of receiving and making payments, the logistics involved in shipping the goods can be a challenge but not with Valuehandlers. View our Global Network to confirm your location and how we can ship to your buyers. 

    Free consultation to discuss the best shipping mode to match your needs is available. Call 08032241768 or send a mail to info@valuehandlers.com to book a free consultation and make inquiries. 

     




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