Picture this: You’re a business owner with a fantastic product or service, and you’ve conquered your local market. But what’s next? It’s time to spread your wings and go global! Exporting is the magic wand that allows you to reach customers from the bustling streets of Mumbai to iconic avenues of Manhattan. By expanding the market and tapping into global opportunities, exports can prove to be extremely profitable for businesses.
Indian exports are valued at over $750 billion in a year, contributing significantly to the country’s economy and its growth. As India continues to explore new markets and expand its export capabilities, it becomes crucial to consider the right method of export payment as it can impact overall operations. But how do you go about picking the best one for your business? Read on to find out more.
Choosing the right payment method makes a world of a difference
Export payments are when a buyer from another country pays a seller in a different country for goods or services. There are different types of export payments, each with its own advantages and disadvantages. It is important to understand these methods to make an informed decision about the right one for your business so as to reduce risks.
Letters of Credit
This is one of the most secure ways for global money transfer for an exporter. A letter of credit (LC) is a contractual agreement between the importer and exporter’s bank, promising payment upon meeting the mentioned terms and conditions in the LC. This is done by providing specific documents, which upon verification by the banks, releases payment from the buyer’s bank to the exporter’s bank.
However, it is an extremely labour intensive method as it requires providing detailed documents that are prone to errors and discrepancies. It is also relatively expensive due to banking fees of the different banks involved.
Best use:
- If the importer’s credit is unacceptable & unavailable
- In high-risk, newer or less-established trade deals
Cash-in-advance
It is the most secure method of payment for exporters since the importer pays for the goods before it is shipped, typically via wire transfer, credit cards or an escrow service.
- Wire transfer: Typically processed by banks or financial institutions through a secure and networked system like SWIFT (Society for Worldwide Interbank Financial Telecommunication), it is the most preferred method for cash-in-advance. Cross border wire transfers can incur fees depending on the banks or financial institutions involved.
- Credit Cards: Another commonly used option, it is best for small consumer goods transactions or exporters with eCommerce businesses. International credit card transactions fees will apply and may vary depending on the credit card processor.
- Escrow Service: This method protects both parties as funds are placed with a trusted third party who acts as a mediator. Think of them as a safehouse that holds onto the funds until the established conditions are met, after which the payment is completed.
Cash-in-advance mode of payment is less burdensome than LCs, but also a less attractive option for a buyer due to unfavourable cash flow and uncertainty of receiving goods that have been paid for.
Best use:
- If the buyer is a new customer with a less-established purchasing history
- If the buyer’s credit cannot be verified and is unreliable
- If the export market is unstable and high-risk
Documentary Collections
A simplified export transaction that offers faster payment, documentary collections involve the exchange of shipping documents for payment. Here, the exporter and importer’s bank facilitate the export sale, and fees are lower as banks don’t verify the documents nor guarantee payment. Thus, it is important that the exporter trusts that the buyer has a reliable history of paying on time.
Best use:
- In established trade relationships with a trusted foreign buyer
- In economically and politically stable markets
Open Accounts
In an open account arrangement, the exporter ships the goods and invoices the buyer after shipment, which is typically 30, 60 or 90 days. A more favourable option for the buyer in terms of cash flow and cost, it is consequently the riskiest option for an exporter as they might not receive payment if the buyer defaults.
Best use:
- In an economically & politically stable market
- High confidence in the buyer to accept the shipment & pay on time
Consignment
The exporter ships goods to a foreign market, but its ownership remains with the exporter until the goods are sold. Payment is not transferred until the goods are sold by the consignee (the party receiving and selling the goods in the foreign market) to the end customer. But there are significant risks involved – like delay in payments that will affect cash flow and the prospect of the goods not being sold.
Best use:
- A trusted buyer with a reputable and reliable foreign distributor
In the world of international business, export payments are a vital puzzle piece. How you pay depends on trust, what you’re trading, and industry customs. While payment methods offer perks, they also bring along some tricky challenges like high transaction fees, complex processes and paperwork, and navigating complicated regulations. But what if we told you that there’s another method for international money transfer that is simple, quick and helps you save more?
A passport for your product – Razorpay’s MoneySaver Export Account
We’re here to be your compass, guiding you through the labyrinth of export payment methods, ensuring you make a decision that is tailor-made to your business. Built for Indian exporters, the Razorpay MoneySaver Export Account is designed to simplify the process of receiving international payments via cross-border wire transfers. It offers seamless access to a variety of wire transfer methods, including ACH, SWIFT, SEPA, BACS, and Fedwire. The MoneySaver Export Account offers Indian exporters a global banking experience in 200+ countries. Whether it’s USD, Euro, Pounds, or Naira, receiving international wire transfer export payments is as simple as NEFT/RTGS transfers. You can open an international bank account anywhere your customers are, without needing a local presence. Account setup is a one-click process, and you can start receiving international payments within < 5 seconds with the MoneySaver Export Account. If you are an existing Razorpay user, you can visit your dashboard to know more and open your account today.
So, grab your passport, because we’re about to embark on a thrilling journey through the global marketplace with Razorpay’s MoneySaver Export Account.
