Skip Navigation Login | Contact Us | Site Map | New Visitor Registration | Need Help?
Food Export-Midwest | Food Export-Northeast - Compete and Succeed in the International MarketplaceFood Export-Midwest | Food Export-Northeast- Compete and Succeed in the International MarketplaceFood Export-Midwest | Food Export-Northeast- Compete and Succeed in the International MarketplaceFood Export-Midwest | Food Export-Northeast- Compete and Succeed in the International Marketplace
Buyers of U.S. Foods | My Food Export Portal | Media

Print This Page Share This Page
In This Section

Topic 9: Payment Methods & Strategies

Introduction to Payment Methods & Strategies
Payment Methods Other Than Letters of Credit
Commercial Letter of Credit
Terminology and Procedure of the Letter of Credit
Screnning the Letter of Credit
Document Preparation
Discrepancies
Introduction to Payment Methods & Strategies
Return to Top

This section examines the ways in which small and medium-sized, value-added food and agricultural companies are paid for their exports. It focuses on developing payment policies and procedures that suit the company’s best interests. Various payment options are compared, with a step-by-step analysis of the documentary collection and letter of credit transactions. Instructing the buyer on opening a letter of credit, as well as careful screening of them is included. Other topics include: document preparation, how to handle non-payment of the letter of credit, the draft transaction and the preparation and presentation of collection letters.

It is imperative for all companies engaging in international trade to fully understand the standard methods of collecting their money from foreign importers and distributors. The standard methods of payment used in international trade are:

  • Cash in advance
  • Open account,
  • Documentary collection
  • Commercial Letters of Credit

Each payment method carries certain risks and costs, which often are the responsibility of the exporter. These costs and risks should be analyzed, evaluated and negotiated before shipping in order to price your product accordingly and satisfy all parties involved in the transaction.

There are many variations of each of these payment terms that must be understood, since each transaction will need to be evaluated on its own merit. This section will include examples of the variations in basic payment terms.

Selecting the Correct Payment Method

A company can often use the same methods of checking the buyer’s credit worthiness as in the U.S. Sometimes, complete and accurate information is not available, so the exporter needs to make a credit decision based on the available information. The seller also has an additional credit decision to make in international trade that is not considered when selling within the U.S. That is to evaluate the credit worthiness of the country in which the buyer resides. The most important factors to consider are the availability of exchange and the political and economic stability of the country.

At a minimum, deciding on which payment terms you will offer or agree to with your overseas customers should include the following:

The country risk:The buyer’s country has the ultimate control over the exchange and release of dollars, which of course is what an exporter would like in exchange for their goods. Many developing nations implement import regulations and exchange control mechanisms that can make a payment, in a hard currency like the dollar, difficult at times. This is because they like to hold onto certain minimums of hard currencies, like the dollar, to be able to pay off foreign debts and obtain other financing.

The buyer’s bank’s reputation: If the payment is by a letter of credit, or draft with the bank as the drawee, or if the bank is in any way obligated to pay you, their reputation and financial stability is an issue. Again, proper research done on the buyer’s bank and advice from your own international banker can assist you in deciding whether to work with them or not. Occasionally, an exporter’s strategy includes requiring the buyer to use a bank recommended by your own bank in order to complete the transaction.

The credit worthiness of the buyer: In some rare cases, international credit reports on foreign firms are vague, difficult to obtain, too expensive or non-existent. This is why you should ask for both trade and financial references in your potential distributor evaluation form, and insist on adequate credit and credit history before ever selling on open account. If the buyer has good credit, they usually are readily able to prove it.

The competition: It is difficult to compete for business if others interested in selling similar products are offering more favorable credit terms. Naturally, most importers are interested in obtaining open account status if they are able to. If the business is promising and you can properly insure your receivables, you might consider it. However, if there is any doubt in your mind about the risk of non-payment, consider holding your ground or even passing on the business. If the buyer really wants the product they might agree to your terms over the competition. Your international bank can be of great assistance in guiding you in those decisions.

The volume and value of the shipment: In most cases, the larger the shipment, the higher the value. That means most of the costs associated in exporting the goods are also more expensive. Lower value shipments, less expensive to ship may call for a more lenient credit position, such as cash in advance, or open account. But if the value of the shipment is going to have an adverse effect on your daily operations, you need to carefully consider asking for cash in advance, at least partially by deposit, or a letter of credit.

Consignment Controlled Shipments

Consignment control refers to keeping the export documents, which are title to the goods, out of the hands of the buyer until you have either been paid, or have the assurance from the buyer’s bank or your bank that you will be paid. This is done by obtaining cash in advance, but also by other means, such as use of a collection, either a “sight’ draft or “time draft,” or by using a letter of credit, which also uses a draft, either on a sight or time basis.

These payments involve the title documents being relayed through international banks, who are either obligated under International Chamber of Commerce guidelines to collect the monies for you, or make other arrangement to pay you at a later date, depending on the type of payment you use. The bank will not turn over the documents to the buyer until either the sight or time requirements have been executed. Without title documents, your buyer is unable to recover the goods and clear them through customs.

Payment Methods Other Than Letters of Credit
Return to Top

Payment by Cash in Advance

Cash in advance, a wire transfer or bank draft, is often used on lower value shipments. It is a sensible option because International open account can average nearly 90 days until payment on a worldwide basis. Paying someone to manage a small open account for 3 months might result in losing money on the sale.

Cash in advance opportunities for export payments exist, usually when the buyer has significant interest in obtaining product from the seller, access to the preferred method of currency and is quite fiscally sound. Otherwise, it is the least preferred method of payment for the buyer, although the most attractive for the seller. It should also be pointed out that both the wire transfer and payment by foreign check are also used on open account payments.

Cash in advance is also used in cases, when the value is higher, say $25,000 to $50,000 or beyond, and you are custom-making the product. Reselling the product to another buyer might be difficult, if not impossible. In this case, you would need at least a significant deposit to cover the cost of raw material and labor in order to protect yourself. If you are selling stock items that you can resell and are comfortable with the buyer or control the title of the goods, then you might consider other options.

Payment by Wire Transfer

Payment by wire transfer is a fully electronic means of payment and the fastest way for the seller to be paid. It is also easier to trace the movement of the funds between banks and uses pin numbers to allow authorized use and frequent transfers between the same accounts. An exporter can be paid this way in U.S. dollars or other currencies if they prefer. A common payment policy for an exporter using cash in advance by wire transfer is to release the shipment to the international freight forwarder or carrier once the transfer has been deposited into their account.

There are fees for this service method, by both the buyer’s and seller’s banks, which are usually split between them. Occasionally, a transfer can get lost or be delayed and there are some steps involved in establishing the correct information between parties, so it is more complicated than making electronic payments within a country. The buyer may be concerned that it is not possible to stop the payment once it has been executed. In order to ensure accurate routing and processing of wire transfer, the seller should provide the buyer with the following details:

  • Name and address of the receiving bank and branch
  • The receiving bank’s electronic identification codes, such as SWIFT, Telex and ABA numbers (SWIFT is the acronym given to the Society of Worldwide International Financial Telecommunications, an EDI technology, telex communications are still used in the international banking industry and ABA is the American Bankers Association Routing Number)
  • The seller’s name, address, bank account title and account number

Payment by Foreign Check

Payment by check is convenient when the routing details for payment are unknown or do not exist. It is not a preferred method of payment for an exporter as it is easy for the buyer to stop payment, the transit time can be slow and it cannot clear until the funds have been obtained by the buyer’s bank. If it is paid in another currency, the value may change during the collection period due to currency fluctuations.

Payment by Open Account While we commonly use this term domestically, it has a slightly different connotation in international trade. The seller must determine what open account means to the buyer and gain a clear understanding of when to expect payment under this method. Also you may want to back up this method of payment, when the buyer demands it, with a bank guarantee from the buyer’s bank. A bank guarantee means that the buyer’s bank is willing to guarantee that you will be paid in the event that the buyer fails to pay. Another backup would be foreign credit insurance on your receivables that would pay in the event of non-payment for either commercial or political losses.

Open account is not uncommon between international traders. It actually represents nearly 70% of all trade transactions by recent estimate. Many of those business relationships did not start out on open account. As an exporter, you not only have to decide on which payment methods should be implemented in different countries for different buyers and at different amounts of credit, but how your payment methods should be managed after you have experienced timely payments by your customers.

Many firms may start out by mandating cash in advance or letters of credit and then move to a more flexible form of payment, such as the use of a collection or open account. The key is using a “consignment controlled” payment method until you are comfortable working with the buyer on open credit. You might even change payment methods between shipments based on the size and amount of value, method of shipment or time of season.

Reasons for Seller to Offer Open Account Terms

  • Existing customer with good credit history
  • Customer’s preference
  • A competitive advantage

Reasons for the Buyer to Request Open Account Terms

  • No risk to the buyer (the seller bears all the risk)
  • Documents are expedited to the buyer’s control
  • Inspection of the goods prior to paying may be possible

Payment by Draft (or Documentary Collection)

This payment method is most often used in international trade in the exchange of merchandise for money. With this method, the goods are shipped to the foreign country, but the documents are sent to the buyer’s bank. The buyer’s bank will release possession of the documents once the buyer has made payment arrangements (sight), or signed a promise to pay at a later date (time).

It is also important to note that documentary collections are used on their own as payment mechanisms as well as in support with letters of credit. An exporter can be paid on a sight draft or time draft as stand alone methods, or be paid on a sight or time letter of credit, which indicates what type of draft is to be presented along with the L/C and documents for payment.

Important Vocabulary for Drafts

For a more complete glossary on the documentary collection vocabulary, click here.

Draft Collection Procedure

Under this method, goods are shipped to the foreign country, but generally not consigned to the buyer. Bills of lading are usually consigned to the order of the shipper or the buyer’s bank, (with their permission) which will release their possession once the buyer has made payment arrangements or signed a promise to pay at a later date.

The exporter, their bank or their international freight forwarder, prepares a draft drawn on the buyer or their bank, and submits the draft together with the documents and instructions to the buyer’s bank. If drawn on the buyer, the buyer’s bank notifies the buyer to come in to the bank and either pay or accept the draft. Once completed, the documents are turned over and the buyer can make clearance arrangements. If a sight draft, the remitted amount would be wired to the seller’s bank, which credits the seller’s account after collecting their fee.

To view a flowchart of the documentary collection procedure, click here.

Risk of Non-Payment

Payment by documentary collection is not as expensive as a letter of credit, but leaves the seller at risk if the buyer refuses to honor the draft. The exporter’s advantage with a sight draft is that the bank still controls the documents and notifies you of the nature of the problem, waiting for your instructions. Options then include re-negotiating with the buyer to accept the draft, locating another possible buyer in that country or one near it or having the goods returned at the exporter’s expense.

The only thing worse than an unaccepted sight draft is one that is accepted on a time basis, and then left unpaid when it matures, or becomes due. In this case, your recourse for collection is only an endorsed draft from the buyer, so it is quite similar to open account. Many experts in this field recommend that you never draw a time draft directly to the buyer, but rather the buyer’s bank, with the bank’s approval. They also recommend avoiding consigning the bill of lading directly to the buyer, but rather to their bank or “to order of shipper,” making it negotiable.

Although the consignment is controlled and the costs are less than a letter of credit, the bank’s involvement is restricted in protecting you, unless the drafts are drawn on them. They are under no obligation to pay you as they are with a letter of credit, and these processes are governed by their own International Chamber of Commerce guidelines. Before using these instruments, you should become familiar with the specifics or obtain consultation on the details.

To view an example of a sight draft documentary collection for an airfreight shipment, click here.

Rules on the use of Draft Collections

These rules are published by the International Chamber of Commerce (ICC), located in Paris, but with an office in New York. The title of the rules is “The Uniform Rules for Collection, ” publication number URC 522, revised January 1, 1996. The rules are revised from time to time and when they are revised, those who use drafts need to apprise themselves of any changes.

Your international banker can provide you with a synopsis or you can contact the ICC directly, at http://www.iccwbo.org/.

Commercial Letter of Credit
Return to Top

If not required by the foreign government, the letter of credit (L/C) is commonly used when the risk of non-payment is too great to allow any other form of payment except for cash in advance, and the buyer is unwilling or unable to pay that way. The letter of credit is an electronically generated contract between the buyer’s bank and the exporter. The buyer’s bank substitutes the credit of the buyer with their own, at a fee and with a set of instructions to accomplish in order to secure payment.

Under this term, the buyer’s bank enters into a letter of credit contract with the seller, stipulating them as the beneficiary. The buyer’s bank then (usually) contacts a bank in the United States and asks them to either advise the letter of credit to the seller in the U.S. or to add their confirmation. By adding their confirmation, the U.S. bank agrees to pay the beneficiary even if they are unable to collect from the issuing (buyers) bank. The most important aspect of a letter of credit is that the banks involved have no obligation to pay in the event of serious discrepancies on the documents supplied by the beneficiary (seller).

Why Use Letters of Credit?

For the seller, the L/C allows for minimal risk exposure. Although not a guarantee of payment, the issuing bank is obligated to pay if all of the terms and conditions have been met. This payment method may also allow for financing from Federal, State or private financial institutions, which may provide working capital and advance partial payment, as an incentive to export from the United States.

The buyer may use the L/C for financing and protection against delayed shipment, improper insurance coverage or incorrect amount or type of products being shipped. The issuing bank is not obligated to pay the seller if there are any discrepancies in the document that would indicate that the terms and conditions have not been met. The method of payment is designed to protect both parties to the transaction.

The Rules on Letters of Credit

The International Chamber of Commerce (ICC) writes the guidelines for using letters of credit. The most current publication of these rules is the “Uniform Customs and Practice for Documentary Credits,” revised July 2007, publication UCP 600. It is the exporter’s responsibility to understand these rules and to prepare documents as stipulated in the rules. For this reason, most exporters use their international export assistance agencies and service providers, such as freight forwarders and international departments of banks, to help them prepare for payment under letters of credit. Copies of this publication can be obtained from an international banker or purchased from the ICC Publications located at www.iccwbo.org.

Parties to the Letter of Credit Transaction

There are multiple names for the same parties in the letter of credit transaction. This is because it combines banking terms with international shipping terms. Although a little confusing at times, it is imperative to understand what the letter of credit says and to whom it refers at each point. Letters of credit often use one or more terms to describe the same business entity in different areas. Understanding the vocabulary used in letters of credit is essential to a successful payment.

For a glossary on letter of credit vocabulary, click here.

Instructions for the Buyer on Opening a Letter of Credit

Prior to the letter of credit being issued, the exporter should send a clear set of instructions detailing what elements to include in it, based on their ability to perform the responsibilities. This should be sent along with the pro forma invoice, which indicates the payment method. The exporter needs to clearly indicate what they can and cannot do and to which bank the letter of credit should be sent. It is to the exporter’s advantage to work with a bank they know in their region rather than one who has no knowledge of their business or industry.

The instructions should be combined with other letter of credit requirements that are decided upon between the seller and the bank in the foreign country prior to opening the L/C. The letter of credit is an agreement between the seller and his bank, and the bank issuing the letter of credit will place requirements in it that protect their interest. However, it is a very wise choice to advise the buyer, and therefore the buyer’s bank, of the verbiage and requirements that you find acceptable. By doing this, the exporter will avoid the obligation to produce documents that are typically not applicable to the industry or other requirements that cannot be fulfilled.

Click here for an example of a letter of instructions to the buyer’s bank for issuing a letter of credit.

Main Differences between Drafts and Letters of Credit

  • Obligation to pay: With a collection, the obligation to pay is with the buyer only, and with an L/C the obligation is with the issuing/confirming bank.
  • Risk to seller: The risk to the seller is usually greater with payment by collection and usually less with a L/C.
  • Documentation: Documentation is not checked for accuracy on a collection, but is under a L/C.
  • Role of the bank:The bank’s role is passive on a collection; with a L/C, it is very active as the issuing/confirming bank has substituted its credit for that of the buyer.
Terminology and Procedure of the Letter of Credit
Return to Top

The following list describes the usual course of action for payment under an exporter letter of credit, whether advised or confirmed:

1. The pro forma invoice and the terms of sale and payment are agreed upon.
2. Instructions on opening the L/C are sent to the buyer.
3. The buyer establishes a line of credit with his bank.
4. The buyer’s bank issues a letter of credit to either the branch, correspondent or nominated bank.
5. The bank may or may not authorize confirmation, even if requested.
6. The advising bank forwards a letter of credit to the seller.
7. The seller carefully analyzes the L/C and coordinates shipment with a freight forwarder who assists with the pro forma invoice quotation.
8. The seller proceeds to ship if all terms are acceptable.
9. The freight forwarder arranges shipment and completes required documentation evidencing compliance with the terms and conditions of the credit.
10. Documents required by the L/C, demonstrating compliance, are sent to the advising or confirming bank that carefully checks against terms and conditions.
11. If using a confirmed letter of credit, the draft is drawn on the confirming bank on either a sight or time basis; at sight payment is made within two business days, while a time draft is accepted by the confirming bank and payment is made within terms of the draft.
12. If using an advised letter of credit, documents are sent to the issuing bank for secondary review, and the draft is drawn on either the issuing bank or applicant at sight or on time basis.
13. The buyer is notified by the issuing bank of compliance.
14. The issuing bank then pays the confirming or advising bank, which has paid or will pay the beneficiary based on the terms and conditions of the draft.
15. Documents are released to buyer or customs broker who makes arrangement for clearance.
16. The buyer takes title to goods to use or resell in their market.

To review a flowchart that identifies all of the parties to the transaction, their roles and the payment process, click here.

Screening the Letter of Credit
Return to Top

Letters of credit are not a “guarantee” of payment, just an assurance of payment, once the seller has shipped the correct goods in the correct amount at the correct time, by the correct mode of transport and can prove it in their documentation. The exporter should always send clear instructions for issuance, analyze the L/C carefully upon receipt and prepare the documents exactly as the L/C states, sometimes even when it makes no sense. Banks pay on the strength of the documents, not on your good word. The best advice is to never guess, ask all the questions you need to and ask for help. Many export service and a ssistance providers are available to help in this area.

Seller’s Responsibility

Once the exporter has received the letter of credit, the first thing they need to do is take the time to screen it very carefully. If the exporter has any questions or concerns, they should consult with either their freight forwarder or advising/confirming bank in order to clear up any confusion. The exporter needs to, at a minimum, examine for accuracy and completion of each detail:

  • Verify that the L/C is drawn in irrevocable form and subject to the UCP 600, published by the International Chamber of Commerce
  • Spelling – make sure all of the company, product and other information that will appear on your documentation is correct
  • Shipping information – origin, destination and method need to match your quotation
  • Merchandise description – spelling is important as well as what the L/C is “covering,” which is what they are paying for, as it needs to match what you are selling them
  • Terminology – anything unfamiliar to your company needs to be cleared up as it might delay or prevent payment if not addressed properly
  • Match with pro forma invoice – does the L/C match your quotation, especially in regards to the amount to be paid and trade term?
  • Dates – the issuing date, latest shipment date, latest date for presentation of documents to the bank and expiry date all need to be noted and considered
  • Insurance – the requirement for coverage, type of coverage and cost should all be noted
  • Costs – check for unfamiliar costs and responsibilities for paying for services that you have offered in your quote, or perhaps not been aware of
  • Documents – check the required documents carefully and make sure they can be obtained, prepared and presented correctly to the bank for payment
  • Trade terms – most L/C’s are based on a specific trade term, such as “FOB” or “CIP” and this should match your pro forma invoice and also be correct as far as prepaid or collect freight charges

For a more complete checklist that includes information on screening the letter of credit, click here.

Document Preparation
Return to Top

Correct preparation of documents is necessary for prompt payment. The following list should be used to ensure that documents have been prepared in accordance with the letter of credit requirements.

The Draft:

  • Must be signed on the front.
  • Must be drawn on the correct party (Drawee – to whom the draft is addressed – usually the paying bank, in letter of credit transactions).
  • Amount should be spelled out, and in figures, both of which should agree.
  • Tenor must be correct (i.e. “at sight” – “at 90 days from sight”).
  • Must be endorsed on the reverse, if payable to drawer (Drawer – person making the draft – in letter of credit transactions, the beneficiary or seller).
  • Must agree with the invoice amount.
  • Must not be altered, i.e. no corrections or erasure.

The Commercial Invoice:

  • Must show the terms of sale – i.e. CIF, FOB and EXW.
  • Must be addressed to the buyer.
  • Must be signed by the beneficiary as required by the L/C.
  • The amount of freight charges must agree with those shown on the bill of lading (if shown).
  • The exact merchandise description as shown in the letter of credit must match the invoice. The invoice may show other information but must contain the letter of credit merchandise description.

The Bill of Lading:

  • Must be “clean.” (A clean bill of lading is a bill of lading showing no defects in the goods or packaging).
  • May not be acceptable if issued by a forwarding agent. If transshipment is prohibited in the letter of credit, a bill of lading evidencing transshipment is not acceptable. In cases where shipment is to be made by air, it is advisable to have transshipment allowed in the letter of credit.
  • Must show shipment “on board” a named vessel and the on board date must be noted on the bill of lading.
  • The bills of lading must show the number of original bills of lading issued, and if more than one original has been issued all the originals must be presented.
  • Amount of freight charges shown in the bill of lading must agree with those on the invoice.
  • Weight and number of packages shown on the bill of lading must agree with those shown on weight lists of packing lists (if any).
  • Merchandise description must be consistent with that shown on the commercial invoice and the letter of credit. Ports of loading and destination, consignee, notify party, must coincide with those shown in the letter of credit.
  • Must be presented to the paying bank within 21 days from the on board date, unless otherwise specified in the letter of credit.
Insurance Policy:
  • Unless otherwise stipulated in the credit, insurance must be issued for the total invoice value of the goods, including freight and insurance charges, plus 10%.
  • Must not be dated later than the on board date shown on the bill of lading, unless the merchandise has been insured with coverage to start prior to shipment on board (i.e. coverage from warehouse to warehouse).
  • The insurance must be issued in the same currency as the letter of credit.
  • If the insurance is payable to the shipper, then he must endorse the insurance policy on the reverse.
  • Insurance documents must be as specified in the credit and must be issued and/or signed by insurance companies, their agents or by underwriters.
  • Coverage must be adequate to cover all the risks required on the letter of credit.

Packing List:

  • The packing list must show the number of packages, etc., and be consistent with other documents.

The Certificate of Origin or Consular Invoices:

  • Must agree in form with invoice, bill of lading and the letter of credit.
  • Description of merchandise must agree with L/C, invoice and other documents.
  • Weight shown must match bill of lading and other documents.
  • Value shown (if applicable) must match all other documents.
  • The Chamber of Commerce or the buyer’s consulate must approve it with their stamp, unless otherwise specified in credit.

The best way to avoid discrepancies in the documents is to prepare them in great detail, matching the letter of credit perfectly and in accordance with the UCP 600. Again, international freight forwarders, especially the ones who help the exporter with the original quote and prepare the final document package for bank negotiations, as well as their advising/confirming bank can be of great assistance in this area.

Discrepancies
Return to Top

Sending a letter of instruction to the buyer before opening the credit and carefully screening the letter of credit after obtaining it is important. These steps prevent any discrepancies, which could delay or even prevent payment on the export sale. Simply put, a discrepancy is a mistake in the documents compared to what the letter of credit has indicated.

Discrepancies usually come in two forms. Those you can fix before they are sent to the overseas bank, and those you cannot possibly repair. They are often referred to as repairable and irreparable discrepancies.

The most common discrepancy in the U.S. is a difference in the description of the merchandise between the L/C and the commercial invoice.

That is why the commercial invoice needs to be prepared perfectly in accordance with the L/C. It is always required first as the primary document for payment and is reviewed the most carefully. If the L/C has indicated it is “Covering: 500 cases of Bold & Brave Meat Snack Sticks,” and the invoice describes your product as “Stix,” then the exporter may be found discrepant. For a slight delay in payment and a discrepancy fee, the exporter can repair and resubmit, but that could easily be avoided with careful checking.

If the L/C indicated shipment was to be by air transport and the goods were shipped by sea, then you may have violated the terms of the contract, and the issuing bank reserves the right not to pay, even though the goods are on the way. You would most likely have to do some deep discounting to fall in good graces and get paid.

For a more detailed listing of discrepancies on letters of credit, including those which are correctable and those that may not be, click here.

Payment Options and Major Discrepancies

If there is a major discrepancy, the issuing bank often makes the final decision on whether to pay. Major differences often void the entire letter of credit. This is a potentially serious problem. The seller will either find himself on open account with the buyer, or the equivalent of sight draft terms, depending on how the bill of lading was consigned. The process of dealing with discrepancies is as follows:

Was the bill of lading consigned “to order” or consigned directly to the buyer’s bank? If either of these statements is correct, can the exporter be assured that the buyer cannot take possession of the goods without creating an obligation for the foreign bank to pay regardless of the discrepancies? If the bill of lading was consigned directly to the buyer, immediate steps should be taken with the carrier to see if the exporter can block possession by the buyer until the discrepancies can be resolved.

Determine the nature of the discrepancy. It is very important to determine the nature of the error, what rule in the UCP 600 was violated, and how the error occurred. This provides three valuable insights: a) the exporter or forwarder will learn how to prepare future documents properly; b) the exporter may determine that the error can be corrected because the offending document can be corrected, and c) the exporter will become more familiar about how the UCP 600 is used for interpretation of letters of credit and the documents submitted as evidence of performance. In the instance that the U.S. bank has checked the documents and discovers the discrepancies, they must contact the exporter or the freight forwarder to determine if the documents are to be sent on an approval basis. Discuss with your bank the degree of risk that you will encounter if the documents cannot be corrected. These risks will be dependent on the ability to control the possession or title to the goods that are covered under the letter of credit.

The exporter must decide to: accept the collection risk, recover the goods and have them returned to the United States at their expense, or sell the goods to another customer in the same country or same region of the world. The final options would be to have them destroyed or abandoned.

So what’s the next step?

For more detailed exporting information relative to your specific business please register for our Food Export Helpline™ service. There are always specific issues and questions that are unique to your company, products, and export markets. With the Food Export Helpline™, you’ll speak with an industry expert who’ll put his more than 20 years of experience to work for you. There are no canned answers, only insightful, customized advice specifically for you.
Click here for the Food Export Helpline.

Or, register for our Market Builder program. This service provides customized, in-market research to help you determine if a market is right for your product. Exporters can find new distributors or importers, receive valuable feedback about their product and gain industry insights on topics such as the distribution process and import regulations and restrictions for 18 international markets.

Return to the Export Essentials Topic List