International settlement method and various payment method risk detailed

Export trade cannot be separated from the collection of foreign exchange, the common way of international settlement I believe that we all understand. We can receive foreign exchange through domestic account and overseas account. But different areas collect foreign exchange, what is different?

Let's look at the riskiness of the various payment methods, from the least to the most.

1
100% T/T advance

100% payment to production.
Note that this is payment to production, also is not payment to delivery.
This method of payment means that the full payment has been received before the production starts. For the exporter, it is certainly a payment method with zero risk, but it is also the most risky method for the importer.
Generally, only sample orders or small orders use this method of payment.

2
T/T deposit + T/T balance payment paid before delivery

This method of payment is also very secure.
And it is earnest money proportion collects taller, safe coefficient is taller.
Of course, there are some very extreme cases, the customer paid the deposit after abandoning the goods, or closed down, the probability is very, very small.

Want to do not deliver goods only, received earnest money to encounter customer abandon the situation of goods, can resell to other customer or deprice processing.
There are many solutions.
However, I have also encountered the situation of not paying for goods.
I once had a customer from Argentina who paid thousands of dollars for an order. After the money was paid, he said to stop the production before it was produced. The money was reserved for other products, and then nothing was left.

3
T/T deposit + balance payment sight L/C

Generally speaking, 30%T/T, 70% balance payment credit.
Of course, the higher the T/T ratio, the better.
In fact, this payment method is almost as secure as the second payment method.
It is also a very secure payment method.

The difference is that with this payment method, we must ship the goods and get the bill of lading before we can deliver the documents.
The biggest risk of L/C payment is that the customer refuses to pay after the discrepancy.
After receiving the T/T deposit, there will be an immediate discrepancy, and the customer will basically accept the payment for the discrepancy, because he has already paid so much deposit, it is impossible to refuse the deposit for a little discrepancy on the document.
So this is a very, very safe payment method.

It should be noted here that T/T deposit, irrevocable letter of credit balance payment at sight, is a very safe way of payment.
But we must pay attention to the first T/T deposit, balance payment letter of credit.
Some friends told me that clients in Bangladesh used 70% of the amount of letter of credit as deposit.

30% balance payment see documents T/T such a strange way of payment.
This method of payment is very unsafe, because the exporter will be in an awkward position if the customer does not pay T/T balance payment after the goods have been shipped with the full set of documents.
If the goods will arrive at the port immediately, there will be demurrage charges. After the delivery of the documents, the customer will not pay balance payment without effective means of restraint.
Sure enough, soon after his client asked them to deliver the bill first, and he would pay the T/T part after he sold the goods...
This kind of payment method is risky and needs to be avoided

The above 3 kinds of payment methods, can be said to be 99.99% safe.
If you control the risk strictly, then the above three ways are absolutely the first choice, basically will not have any bad debt and the risk of not receiving payment.

In addition to the payment method itself, we also need to consider the specific economic and political conditions at that time. For example, in the case of financial crisis like Cyprus, residents' deposits were forced to be reduced by 40%.
What does this mean?
So if you have $15 million in the bank today, you only have $90 million tomorrow, and where is that $6 million? It's gone. This is called a mandatory deduction.

Under such systemic risk, any other payment method will be risky unless the payment is made after 100% payment is received.
Therefore, there was also a project of Cyprus at that time with 28W USD, 30%T/T deposit and 70% balance payment 45 days L/C payment. Simply speaking, the payment terms were acceptable.
However, I have considered again and again. When the customer came to China to see the factory, everything was OK, and he asked me to send PI again and again.
And spent thousands of reception fees, or decided to say no to him, I said another clever.

4
Part of the deposit, part of balance payment see B/L copy copy

This is the most commonly used method of payment.
The most similar proportion is that the formula is 30%T/T, 70% balance payment, see the copy of B/L.
In actual operation, there will be some changes. For example, for some old customers with good payment methods, 20%T/T and 80% balance payment can also be paid at sight of B/L.

This payment method is 99% secure, which is also very secure.
The risks of this method of payment are as follows:

1. Major changes in the customer's business conditions.
You can't pay balance payment.
The operating situation here has undergone a major change, the main possibility is that the client company has a problem in capital turnover.
The interest rate of foreign bank loans is very low, and many customers rely heavily on bank loans for liquidity.
Some are even completely their own funds, with an order to apply for a loan order to the domestic.
When the chain of his funds broke off, there may be a partial deposit, unable to pay balance payment way.
In view of this situation, we should investigate the strength of the customer and all aspects of the business situation before determining the payment method.

For details, you can search the customer's background on Google or learn from other domestic suppliers.
If the credibility is not very sure of the customer, you can use the practice of asking to increase the deposit proportion, such as increase to 50% deposit, so that the risk of customer abandon goods is greatly reduced.

2. Sudden changes in the international environment, such as a sudden drop in the exchange rate of the client country.
In 2015, the exchange rate of Russia and Brazil plummeted by 30 or 40 points. At this time, if the deposit rate paid by customers for some orders is relatively low, about 10%-20%, customers may directly abandon the goods. I don't want the deposit, and you don't send the goods to me either.
In other cases, it is the impact of war, such as Ukraine in 2014, because of the impact of the Crimea conflict, a lot of Ukrainian customers went bankrupt.
In such a situation, the abandonment of goods will often happen.
In view of this situation, we need to pay close attention to the international environment and the international situation.
When encountering a customer order in a region of economic turmoil, you can also reduce the risk of receiving money by increasing the deposit ratio, or by requiring payment before delivery.

3. The third kind of situation is worse, or fraud.
The above two situations belong to the risk of abandoning the goods brought about by the change of objective conditions. In many cases, the customers do not subjectively want to abandon the goods.
There are some very small proportion of unscrupulous forwarders who collude with customers to release goods without orders.
Of course, 99.9% of the designated forwarders work very well.
Because the forwarder company is in China after all, unless he is ready to close down soon.
You can always find him.

4. Another risk is that some countries in South America have laws that stipulate that if the consignee on the straight bill of lading is the actual importer, he can take delivery of the goods against the copy of the bill of lading.
The main South American countries are Brazil, Nicaragua, Guatemala, Honduras, El Salvador, Costa Rica, Dominica and Venezuela.
In this case, we need To try our best To use "TO ORDER" as the consignee of the bill of lading, which means that the consignee is not sure and should follow the instructions of the shipper.
We can endorse the B/L after receiving the full payment, that is to say, the shipper's letter in English on the back of the B/L, and then send the original to the customer.

Then let's sum up, for part of T/T deposit, balance payment see bill of lading to pay such payment method.
There are several ways to reduce the risk of collection:

1. Try To use "TO ORDER" instead of the actual name of the consignee as the consignee of the B/L.
To Order means that according To the instructions of the shipper, such bill of lading can only be picked up after the shipper endorses it, which increases the control of the goods.
However, there is a drawback in this way that To Order the B/L cannot be telex released.
When the client needs telex release of bill of lading, it is necessary to change the consignee into the client company to telex release.
2. Try to increase the deposit ratio.
This function is to reduce the risk of customers abandoning the goods when the economy of the importing country or the business conditions of the customers change.
If he has paid half of the deposit, it is generally not easy to abandon goods.
Nor is the exchange rate likely to fall by 50% in a month or two.
On the other hand, an advantage of an extra deposit is that in the event the customer does abandon the product, the deposit you receive will cover the cost of bringing it back and handling the resale.
This disposal of abandoned goods up to master the initiative.
3. Make sure to pay balance payment within 5 or 10 days after the B/L, so as to give the customer a time limit for payment.
Because some customers out of the consideration of capital turnover, like to delay until the goods near the port to pay balance payment.
Balance payment is paid within 5 or 10 days of B/L, giving him a firm period.
In this way, if the customer is in urgent need of a delay, the collection of payment is justified.
If the regulations are not clear, some customers will think that I can pay before the port.
Even encountered some malicious delay of customers, money deliberately do not pay.
Because the delay in payment of goods will bring us a loss in exchange rate, we can claim on this basis.
I have used this way to a malicious delay in payment of a customer claim.
After arriving at the port, the client found various reasons to delay the payment for more than ten days.
After the payment arrived, I did not telex release the bill of lading, and asked him to pay extra for the exchange rate loss caused by the delayed payment.
After receiving a fine, telex release, of course, such customers do not intend to continue to cooperate.
4. Pay close attention to the international situation and strictly control the payment method for countries at risk.
Such as seeing some exchange rates fall sharply, or the political environment is unstable, there is a risk of war and so on.
For clients in such countries, it is particularly important to carefully examine the risks of payment methods before accepting orders.