How to Collect Money from Overseas Customers
When you’re dealing with international customers or partners, it can be tough to figure out the best way to collect payments from them.
Calculating exchange rates, which can fluctuate daily, and the stress of communicating with clients in different time zones are two issues that can make money collection a hassle. And some customers may think that being far away makes it easier or more acceptable to delay payment — sometimes indefinitely.
Here are six tips for making sure you get paid as promptly as possible when doing business overseas:
1. Do your research. Make sure you know the legal ins-and-outs of getting paid in the countries where your customers or vendors reside. Know whether the laws cover enforceable debt collection from overseas businesses and whether you can collect for extreme exchange rate fluctuations.
2. Establish clear lines of communication. During the initial contact phase, make sure to establish several reliable methods of reaching your overseas clients, including a mobile number, email address, physical address, and video connection (via Skype, Google+ Hangouts, FaceTime, etc.), if possible. Make sure to update this information at every available opportunity. It can be far more challenging to deal with foreign customers than domestic ones, especially if they prove to be unreliable payers, so multiple points of contact are a must.
3. Agree on payment terms prior to providing any goods and/or services. When discussing payment options — cash, checks, international money transfers, credit cards, or online payments — with an overseas customer, emphasize your payment terms and conditions. Reiterate these terms and then put them in writing, in an agreement both you and your customer sign and date. This ensures all parties involved know exactly what the payment expectations (and due dates) are.
4. Use a cash-in-advance payment system rather than open account terms. When drawing up your agreement regarding payment conditions, consider requesting part of your payment up front. This cash-in-advance system partially covers you against customers who stretch out payment, refuse to pay, or simply cannot pay the balance due. It also affords you immediate use of the partial payment (think cash flow).
5. Consider asking for a Letter of Credit. A Letter of Credit is a document provided by a financial institution, such as a bank, which guarantees payment from a customer to a business/seller when goods or services are received.
6. Employ documentary collections. This is similar to an escrow system and involves a business or seller instructing their financial institution to supply their customer’s bank with documents outlining payment conditions. The customer’s bank then presents the documents to the customer for payment: after payment is made, evidence is presented by the customer so that delivery of goods or provision of services can occur. This benefits both parties by giving the customer additional time to make payment, with the small-business owner retaining ownership of the goods and/or services until payment is made.
Collecting payments from overseas customers and partners can be difficult. By following the steps outlined above, you’ll save yourself considerable time, effort, unnecessary fees, and potential legal headaches.