When deciding on how and when to receive payments from your customers, you’ll need to consider:
the type and size of the transaction
how well you know your customer
how much bargaining power you’ll have (tied to the demand of your product)
which types of payment risk you’ll be exposed to
how much risk you’re willing to assume
how much risk your customer will take on
The table below indicates the level of risk you can expect with each payment option.
With our Trade Finance you can finance the production or purchase of goods for export before you receive payment and have flexibility with the amount and term of finance (up to 180 days) based on your business requirements.
An Export Documentary Letter of Credit provides a conditional undertaking by the buyer's bank to guarantee payment provided all the relevant terms and conditions of the Documentary Letter of Credit are met. It can also help protect you from buyer risk.
What we will do is check that the terms and conditions of the documentary letter of credit have been complied with before forwarding documents to the buyer's bank.
What are the benefits?
You receive guarantee of payment from your international customer's bank. In addition:
the buyer cannot cancel or alter the terms and conditions without your agreement
you can restore your working capital as soon as possible after shipment of goods
the payment peace-of-mind offered allows you to safely develop new business relationships and opportunities
How does it work?
The Export Documentary Letter of Credit is issued as "irrevocable", which means it cannot be amended or cancelled without agreement from all parties to the Letter of Credit.
Upon receipt of documents from you, we will check that the terms and conditions of the documentary credit have been complied with, before forwarding documents to the buyer's bank. This involves the presentation of specific documents as called for under the documentary credit and may include commercial invoices, bill of lading, certificate of origin etc.
The documentary credit is issued on a 'sight' or 'term' basis: sight means that drafts are drawn for immediate payment, term means that drafts are drawn on a term payment basis - e.g. 30 days after sight, 90 days from bill of lading as agreed between the buyer and yourself.
Overseas bank and country risk - Export Documentary Credit Confirmation
With an Export Documentary Letter of Credit, you are still exposed to overseas bank and country risk. You can transfer this risk to us by having Westpac 'confirm' the letter of credit and conditionally guarantee payment provided all the relevant terms and conditions are met.
This is called an Export Documentary Credit Confirmation and the benefits are:
transfer of overseas bank and country risk
enabling your business to expand into regions where risks associated with the issuing bank or country is difficult for you to measure and accept.
If you and your trading partner have developed a relationship of trust, an Export Documentary Collection may be appropriate as it allows us to facilitate the document release to your buyer and the payment process means documents can be released either on payment or an agreement to pay at a future date.
You retain control over shipping documents until payment or a promise to pay is received.
With an Export Documentary Collection, there is the risk of default if your buyer does not make the payment even though they may already have the goods.
What are the benefits?
this process is more cost effective than a Documentary Letter of Credit
availability in all major currencies
flexibility - making it easier to take advantage of fluctuating market conditions
How does it work?
You specify the payment terms and conditions. We monitor the complete documentary collection process for you from the dispatch of your documents through to receipt of the payment.
As part of our documentary collection process, we forward your export documents to a bank in the buyer's country. The documents are only released to the buyer when payment terms and conditions are met.
You get paid when we receive payment from your buyer's bank.
Documentary Collections are handled on a 'sight' or 'term' basis:
sight means that drafts are drawn for immediate payment
term means that drafts are drawn on a term payment basis - e.g. 30 days after sight, 90 days from bill of lading
Know the risks
Payment default risk is greater than that of a Documentary Letter of Credit as the buyer can refuse payment at any time. Disputes over terms and conditions after you ship your goods can result in delayed payment or non-payment. Unplanned expenses may arise if the buyer delays or defaults payment
If you have a well-established trading relationship and are very comfortable with your buyer, you might choose to trade on an ‘Open Account’ basis. Your buyer would also need to feel very confident that you will supply the goods as per your agreement.
When trading on an Open Account basis, bank drafts and telegraphic transfers are common ways to receive payments from your overseas buyer.