How to Get Paid on International Transactions

international-creditWhether you are collecting payment on a business transaction from a customer across the street or a client who is 12,000 miles away, learning how to collect payment on an overseas sales transaction is the single most critical yet insanely overlooked detail for small to medium sized business owners who aspire to do business internationally.

Why?  Because the excitement for sales folks typically lies in striking the deal — not in determining how you get paid.

Here we outline several methods to collect payments on export sales during turbulent times. But first, here are some things that can influence your decision about how you will be paid:

  • Feedback from your international banker
  • Your customer
  • Your cash flow needs
  • The economic conditions in the country to which you are exporting
  • Interest rates and currency adjustment factors
  • Type of product
  • Your customer’s creditworthiness
  • The terms your competitors are offering
  • Your supplier’s demands
  • The urgency of the transaction — are you under time constraints?

Whatever terms of payment you negotiate, you must make sure they are understood by all parties and that your customer signs a document (e.g., proforma invoice) that indicates acceptance.  This prevents some unpleasant surprises later on and reduces your shipment liability exposure.

It’s essential that you agree on the terms of payment in advance, and never ever sell on open account to a brand new customer.

And now, on to the payment options:

Payment in Advance

This is obviously the best of all payment methods since you can forestall possible collection problems and you have immediate use of the money.  I use the advance payment method when I know absolutely nothing about the customer, when speed of handling will make or break the sale, and when the transaction is less than $5,000.  The only difficult part of this financing method is actually making it happen!  When your customer agrees to this arrangement, he accepts the full risk of the transaction.  If he does, ask for a wire transfer from his bank account to yours, or a certified check made payable to you in U.S. dollars, preferably sent by courier.  It’s reasonable to ask for half of the total sale in advance, with the balance to be paid 30 days from the bill-of-lading date.  This reduces your customer’s risk, thus helping to maintain good will.  Make sure, though, that the advance amount covers your out-of-pocket costs.

Payment Online

Second to cash in advance is payment collected online, provided the transaction is small (processing fees can take a big bite out of your profits) and you wait to release goods or your service offering until after you clear funds in your bank account.

Two well-known options are PayPal and American Express – FX International Payments.  With PayPal, you can send and receive money in 24 currencies from anyone with an e-mail address in 190 countries and regions, allowing you to accelerate the pace of online transactions across borders.  With American Express FX International Payments, you get expertise and the convenience of making foreign currency payments.  Either of these payment mechanisms work fine on smaller-sized exports (less than U.S. $10,000).  But when you get into bigger transactions, you are better off protecting your financial interest in such a way that you are guaranteed payment and the payment processing fee does not gouge your profit margin on the sale.

Letters of Credit — Security with Flexibility

After payment in advance or payment online, securing payment with a letter of credit is the next best option.  We will take a detailed look at how letters of credit work, who participates in the transaction, and what variations and modifications are available to help the parties negotiate mutually acceptable terms.


There are four participants in a letter of credit transaction — two businesspeople and two banks:

  1. The buyer.  That’s your customer.
  2. The opening bank.  This bank normally issues the letter of credit, so it is sometimes referred to as the “issuing bank.”  They assume responsibility for the payment on behalf of the buyer.
  3. The paying bank.  This is the bank under which the drafts or bills of exchange are drawn under the credit.  A paying bank in an L/C transaction might also act as the negotiating bank, advising bank or confirming bank, depending upon what responsibilities it accepts.
  4. The seller.  That’s you.

To summarize the process:  Once you and your customer agree on payment by letter of credit, it is the customer’s responsibility to take your proforma (an invoice that reflects all estimated costs involved to move product door to door) to her bank and open the L/C (letter of credit) in your favor.  Once the opening bank has all the appropriate information from the customer, it advises you, the seller, that the L/C has been opened.  Oftentimes this will be done by cable or e-mail to the paying bank.  Your bank then forwards that information to you.  The letter of credit is final and subject to correction only for errors in transmission.

It is not unusual to find differences between the L/C and the proforma invoice, such as incorrect product descriptions or reference numbers.  So always consult with your banker before attempting any informal deals like this.

Accuracy in all details of your letter of credit is critical.  There are a number of different kinds of L/C, but here are two are important types:


An irrevocable letter of credit is a commercial document issued by a bank at your customer’s request in your favor.  Once issued, it cannot be modified without both parties’ consent.  Here “irrevocable” means that the bank must pay you even if your customer defaults, provided the documents presented are “clean,” meaning that they are in complete compliance with the language of the L/C.  It’s the most secure method of payment.  You can also request that the L/C be confirmed by a U.S. bank.  This arrangement provides the greatest degree of protection because the U.S. bank must pay you even if your customer’s bank defaults.  If the L/C is unconfirmed, the U.S. bank must wait until it receives funds from the foreign bank before it will credit your account.


A revocable letter of credit is a commercial document issued by a bank at your customer’s request in your favor, which can be modified without both parties’ consent at any point.  Once this L/C has been issued, you have the following assurances as the beneficiary: the bank can assure you that, yes, your customer has arranged for them to pay you such and such an amount; and, yes, your customer is known, respected and has been banking with them for decades.  Unfortunately, you cannot rely on this L/C since the bank is under no obligation to cover the L/C if your customer defaults.  You may as well just run a credit check on a customer and ship open account.

A letter of credit may be modified or restricted in a variety of ways.  If you get stuck on negotiating payment terms with your customer, check with your banker to see if you can find a mutually agreeable option.  Be creative and cooperative in investigating payment arrangements that will accommodate your customer, but always make sure YOU end up with secure and timely payment.

If you have a few extra minutes, I suggest you read “Methods of Payment:  Terms, Conditions and Alternative Financing Sources For Export Sales.”  More than 53,000 small business owners have already found it useful.  You might, too.

Collecting money from your overseas customers doesn’t have to be painful.  If you follow the suggestions above and consult with your international banker, you can grow your business global and confidently secure payments from customers all over the world.

Editor’s Note:  this article was previously published at under the original title:  “Managing Methods of Payments on Export Sales in Turbulent Times.”  It is reprinted here with permission.

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About the Author: Global business expert Laurel Delaney is the founder of (a Global TradeSource, Ltd. company).  She also is the creator of “Borderbuster,” an e-newsletter, and The Global Small Business Blog, all highly regarded for their global small business coverage.  You can reach Delaney at or follow her on Twitter @LaurelDelaney.


Laurel Delaney Global business expert Laurel Delaney is the founder of (a Global TradeSource, Ltd. company). She also is the creator of "Borderbuster," an e-newsletter, and The Global Small Business Blog, all highly regarded for their global small business coverage. You can reach Delaney at

12 Reactions
  1. Excellent resource! Thanks for sharing the wealth of knowledge on these variety of methods. This gives me a lot of idea on how I can diversify and broaden my marketplace selection.

  2. Laurel,

    Book tip: International Commercial Transactions by Jan Ramberg. This book was included in the course I attended on commercial contract law and international commercial law.

    I had to pay in advance when I was buying computer stuff from Asia.

    As an example of an expert in the field of international transactions, Elof Hansson – a confirming (trading) house – in Gothenburg has a proven track record on how to get paid as a global business facilitator.

  3. Martin, thanks for the additional sources.

    Laurel, I am very glad that you gave us this tutorial on letters of credit. For someone who is not familiar with them, letters of credit are baffling. This cuts through and helps us all understand how to protect our international transactions so we GET PAID!

    – Anita

  4. Anita: You are welcome. LC is a “safe” way of getting paid, but it could be tricky to get it right. Laurel has given us a great tutorial on this issue.

    As an experienced purchaser, I reflect on how you could use the terms of payment in your negotiation with the other party. It is important to put things on the table and discuss this issue. Have you thought that you are sending out a signal on how much you trust the other party if you want to get paid in advance, compared with giving days of credit? The LC could be a solution of this dilemma. The terms of payment is also a cross-cultural issue and a way of different traditions regarding money transactions.

    • Martin, that’s a good point about using terms of payment as a negotiating point.

      However, I would say this: if you’ve never done business with them before, the other party has not “earned” your trust yet. But if you’ve done business for years with them with no problems, then that’s a different story. So I wouldn’t worry too much about signaling lack of trust in a brand new relationship. But an existing relationship is a different story.


  5. Anita: You are right about that. Thanks for pointing out the time aspect of a business relationship.

  6. Laurel, what do you suggest a company do when they start handling millions of dollars in international payments? At what point do you engage a company like Globalcollect?

  7. We’ve been selling and supporting our time clock software internationally for about 10 years. So far it’s been very simple – we rely on credit cards. It’s effortless and the transaction costs are pretty reasonable.

  8. Thank you for featuring Anita! And I agree with your response to Martin on the trust factor.

    Robert … on handling millions of dollars in international trade payments, you didn’t say whether it’s exporting or importing. If it’s exporting from the U.S.A., Ex-Im Bank can assist ( I am a firm believer in handling transactions direct through your own international bank for both control and minimizing transaction costs.

    Keith … can you give us an idea of the size of your transactions and what the exact transaction costs are on your deals? And on a yearly basis, are your fees minimal or enough to support another person to assist in the international area of your business?

  9. Laurel, thanks for this great article. I would like to bring couple of points into your and readers consideration in my comment. My first point is that, in order to be get paid under a letter of credit, you should make a complying presentation. Banks have no responsibility paying a non-complying documents. So it is crucial for the exporters to understand the terms and conditions of the credit before shipment of the goods. My second point is the confirmation. If you are working with a high risk country, please consider having a confirmation from your bank to the credit to overcome various uncertainties.