Last updated on May 26, 2024

How do you leverage your payment terms to gain competitive advantage in the global market?

Payment terms are the conditions under which a buyer pays a seller for goods or services. They can affect the cash flow, profitability, and risk of both parties in an international trade transaction. Therefore, it is important to leverage your payment terms to gain a competitive advantage in the global market. In this article, you will learn how to negotiate, choose, and manage your payment terms effectively.

1 Negotiate your payment terms

Before you sign a contract with a foreign supplier or customer, you need to negotiate the payment terms that suit your business objectives and risk appetite. You should consider factors such as the market conditions, the creditworthiness of the other party, the currency fluctuations, the legal and regulatory environment, and the delivery time and quality of the goods or services. You should also research the common payment terms and practices in the target market and industry, and use them as a benchmark or a starting point for your negotiation. You should aim to strike a balance between maximizing your cash flow and minimizing your risk, while also building trust and rapport with the other party.

Add your perspective

Dayane Soares Vieira

Traffic Manager (Brazil) @ Fertistream
As negociações de condições de pagamento são de extrema importância para as operações internacionais. Dado que a logística internacional demanda tempo, as vezes curto, as vezes muito longo, o prazo negociado é válido para manter o fluxo de caixa da empresa sempre saudável, casando as operações de compra e venda e assim podendo manter níveis de estoque satisfatórios para o negócio. Com boas condições de prazo na compra é possível oferecer boas condições de prazo na venda o que aumenta a competitividade no mercado global, por isso a negociação dos termos de pagamento é um dos tópicos mais importantes em contratos comerciais.

Translated
Like
Report contribution
Thainá S. Vieira

Diretora Administrativa | COO | International Trade | Strategy | Finance
To gain a competitive edge in the global market through payment terms, align strategies with Brazilian legal considerations. Ensure compliance with international trade laws, currency exchange regulations, and taxation laws. Craft transparent and fair payment terms in line with the Brazilian Civil Code, fostering trust and minimizing legal risks. Offer flexible payment options while considering financial and legal implications. Stay updated on legal changes to adapt and maintain competitiveness in the global market, all within the framework of Brazilian law.
Like
Report contribution
Jhonatan Ravaze

Product Specialist | Agribusiness | Fintech | Foreign trade
A negociação das condições de pagamentos é uma parte importante em um acordo bilateral, vendas internacionais ou qualquer cenário que envolva trocas. A gestão inteligente dessas condições pode te dar uma vantagem competitiva muito grande em relação aos seus concorrentes. Em um mundo cada vez mais globalizado, onde a construção de um produto ocorre em escala global, cada fragmento da margem do lucro importa. Para isso, é importante negociar as flexibilidades, prazos, moedas, reservas cambiais e outros atores estratégicos como bancos privados internacionais que possam avalizar ou não determinada negociação.

Translated
Like
Report contribution

2 Choose your payment method

There are different payment methods that you can use in international trade, each with its own advantages and disadvantages. The most common ones are cash in advance, letter of credit, documentary collection, open account, and consignment. Cash in advance is the most favorable for the seller, as it eliminates the risk of non-payment and improves the cash flow. However, it is the least favorable for the buyer, as it increases the risk of non-delivery and ties up the working capital. Letter of credit is a guarantee from a bank that the seller will receive the payment upon presenting the required documents, such as the invoice, the bill of lading, and the certificate of origin. It reduces the risk for both parties, but it also involves higher costs and complexity. Documentary collection is a process where the seller ships the goods and instructs a bank to collect the payment from the buyer, either at sight or at a later date. It is less costly and complicated than letter of credit, but it also offers less security and control. Open account is the most favorable for the buyer, as it allows the buyer to pay the seller after receiving the goods or services, usually within 30 to 90 days. However, it is the most risky for the seller, as it exposes the seller to the possibility of late or non-payment. Consignment is a arrangement where the seller retains the ownership of the goods until they are sold by the buyer, who acts as an agent. It can help the seller to enter new markets and increase sales, but it also delays the payment and increases the inventory costs.

Add your perspective

Jhonatan Ravaze

Product Specialist | Agribusiness | Fintech | Foreign trade
A escolha do método de pagamento ideal geralmente envolve uma avaliação cuidadosa dos riscos, das relações com o cliente ou fornecedor e das condições do mercado. As pessoas tendem a ficarem presas em somente um tipo de acordo, por exemplo, somente a carta de crédito ou somente a conta aberta, sendo que através de uma boa negociação é possível optar por um modelo híbrido de pagamento. Não existe melhor pagamento, existe o pagamento que melhor se adequa para uma negociação baseada nos atores envolvidos.

Translated
Like
Report contribution

3 Manage your payment terms

Once you have agreed on the payment terms and method with your foreign partner, you need to manage them effectively to ensure a smooth and successful transaction. You should communicate clearly and regularly with the other party, and confirm the details of the payment terms and method in writing. You should also monitor the status of the payment and the delivery, and follow up promptly if there are any issues or delays. You should also keep accurate and updated records of your invoices, receipts, and documents, and use them to reconcile your accounts and resolve any disputes. You should also review your payment terms periodically, and adjust them if necessary, based on the performance and feedback of the other party, as well as the changes in the market and currency conditions.

Add your perspective

Jhonatan Ravaze

Product Specialist | Agribusiness | Fintech | Foreign trade
A afirmação do gerenciamento das condições estão corretas na minha perspectiva, o que é necessário ser considerado é que em cada negociação deve ser acordado uma maneira de uma parte se proteger da outra, uma maneira de aplicar alguma sanção ou reaver parte ou o valor integral do que foi perdido.

Translated
Like
Report contribution