Successful exporters must price their products so they are both competitive and profitable, secure adequate finincing, and obtain insurance to protect their venture.
Export pricing and domestic pricing are not the same: different overseas market conditions, different costs, different quoting formats and different currencies all affect what you charge your customers for your products or services. Pricing for any market requires an understanding of the relative costs, demand and competition of that market.
In addition, all export quotations should be made with a Pro-forma Invoice. Pro-formas are actually not invoices at all, but formal export price quotations that spell out precisely what is proposed in the quotation, including the full product description, shipping terms, and terms of sale. To learn more about export pricing click here.
International Payment Terms
The terms of payment are a critical part of any export transaction. They can determine if you are successful in making the sale, if you make a profit, and the associated financial risk. The following methods of export payment are listed in order of risk from lowest to highest:
- cash in advance – where the buyer prepays some or all of the money in advance of a shipment
- letters of credit – where banks oversee and/or guarantee the payment
- documentary collections– where you ship your goods but retain some control over them until you receive payment. (There are several types of documentary collections)
- open account – where you deliver your goods with an invoice requesting payment on a specific date after delivery.
Generally the first options are safest, but your buyer may not accept the safest terms. You should contact your bank for advice about which option is best for your particular situation. To learn more about international payment terms click here.
SBA Export Financing
The Small Business Administration (SBA) has established three loan programs to help companies enter the export market. Most banks do not advance cash against foreign receivables, so SBA export loan guarantees help to fill this funding gap.
The three SBA export loan programs are:
- SBA Export Working Capital Program (EWCP)
- SBA Export Express Program
- SBA International Trade Loan (ITL)
To learn more about SBA export financing click here.
USDA Trade Finance
The USDA Foreign Agricultural Service (FAS) provides trade finance solutions for exporters of U.S. agricultural products to developing markets. International sales into these markets can pose financing challenges, as U.S. banks may be reluctant to assume the associated credit risk. FAS administers two programs to help overcome some of these challenges and encourage the expansion of U.S. agricultural exports.
To learn more about USDA trade finance programs click here.
The Export Import Bank of the U.S. is an independent federal agency that fills gaps in private export finance in order to bolster U.S. job growth at no cost to American taxpayers. EXIM also provides trade financing solutions – including export credit insurance, working capital guarantees, and guarantees of commercial loans to foreign buyers – to empower exporters of U.S. goods and services.
To learn more about EXIM Bank programs click here.
Export Risk and Insurance
There are four main types of risk associated with exporting. These include, country risk, transaction related risk, buyer risk, and shipping risk.
1. Country risk is tracked by insurance companies who offer country risk insurance, in order to set their premium rates. For example, Coface Insurance publishes country risk ratings on their website home page, and even offers an interactive and downloadable country risk map there. (see below) The Export Import Bank of the United States (EXIM Bank) rates country risk as well, using their Country Limitation Schedule.
2. Transactional risk is the second broad category of risk is related to the actual export sales. Here, foreign bureaucracies may obstruct trade business. They may:
• Require confusing special permits and certificates
• Impose excessively high import tariffs, taxes, or fees
3. Bank and buyer risk can occur if your customer:
• Uses an unfamiliar language that makes it difficult to understand the precise terms of a sale. (English speakers find verbal communication most difficult in Asia, where they cannot even phonetically sound-out words from text.)
• Selects an unsound foreign bank to manage your payment
• Doesn’t use INCOTERNS to assign shipping responsibilities and costs.
• Simply Fails to Pay You!
4. Shipping risk can occur if something goes wrong with the goods while they are in transit. Goods may be damaged in a storm or fire, stolen, involved in a collision or just mishandled. To protect against financial loss, consider obtaining Shipper’s Interest Cargo Insurance. A complete explanation of shipping risk and cargo insurance may be found here.
To learn more about risk management and insurance click here.