As an exporter, you must give careful attention to the financial implications of exporting. You will need finance to cover:

• The cost of initial research, market visits, product promotion, etc
• The manufacture, packaging and transportation of the goods
• Any period of credit granted to the buyer

New exporters are usually concerned with the following areas and their specific consequences in terms of the financial risk of exporting:

• Sources of finance
• Methods of payment
• Export credit insurance
• Foreign exchange

With your accountant or financial adviser, assess your likely financial requirements. If you need extra funds, work out how much you need, what it is to be used for, the best method of raising the finance and how to meet the repayments and conditions of borrowing.

Banks provide a wide range of services and types of funds which cover term lending, overdrafts, hire purchase, leasing and debt factoring.

Method of Payment for Export Sales

The payment and credit terms you offer your overseas buyer are an important factor in securing business. Your terms will be influenced not only by the competitiveness of the market and the general custom of the trade, but also by the information available on the buyer's country and the buyer's credit standing.

Enterprise Ireland and your bank can provide you with background detail in the areas and can advise you on the best method of payment for specific transactions. This will depend on factors including the respective standing of buyer and seller, competitive pressures and the degree of security required by each party.

There are four basic methods of payment:

1. Payment in Advance

While payment in advance is best, in reality it is extremely difficult to obtain. However, in some countries where the risk of non-payment is deemed high and documentary credits are difficult to obtain, exporters can sometimes negotiate payment in advance.

2. Letter of Credit

In the absence of payment in advance, a letter of credit is the most secure method of payment for international trade. It is an undertaking by a bank on behalf of the buyer to pay the seller an amount of money within a specific time, provided the seller presents documents strictly in accordance with the terms of the letter of credit.

In effect, the buyer's bankers are guaranteeing payment to the seller, subject to presentation by the seller to the bank of documents in conformity with the terms of the letter of credit.

3. Clean and Documentary Collections

A "collection" can be defined as the collection of a specified amount from a buyer against delivery of financial and/or commercial documents. There are two types of collection: "clean" and "documentary".

Under a clean collection, a bill of exchange is presented for payment by the seller's bank to the buyer's bank, and no commercial documents are involved. Effectively the seller draws a bill of exchange on the buyer and requests their own bank to forward the bill of exchange to the buyer's bank for payment at sight, or acceptance and payment at a pre-defined future date, the latter is commonly referred to as a term bill of exchange.

Under a documentary collection, the seller requests their bank to forward commercial documents which can include documents of title to the underlying goods to the buyer's bank, with instructions that documents are only to be released to the buyer against immediate payment or acceptance of a bill of exchange, payable at a future date.

However a collection does not necessarily guarantee payment as the buyer may refuse to accept documents as presented and the possibility also exists that the buyer may fail to honour an accepted bill of exchange at maturity.

4. Open Account

Where an exporter is dealing with a buyer with whom a long and successful trading relationship has developed, payment is often conducted on an open account basis. Competitive pressures may also make this a necessity.

Basically open account trading exists where an exporter ships goods or provides services to the buyer on the basis of receiving payment on presentation of the seller's invoice. Obviously a great deal of trust and confidence is required before an exporter agrees to trade on an open account basis.

Exchange Rates Movements

Exchange rates movements against the euro can be favourable or unfavourable. Such movements are important for exporters because they directly and totally affect the bottom line.

One strategy to minimise the currency risk associated with export marketing is to diversify the range of export markets. Another might be to negotiate with the buyer for payment to be made in euro.