How an exporter can get paid by a foreign buyer

For an exporter, a deal is closed when the money has reached the account and the bank has closed the obligation under the contract. Today it is often easier to deliver the goods than to get paid for them: the buyer is ready to pay, but the money does not get through. Let’s look at the settlement methods and at what to build into the contract in advance.

Direct bank transfer

The classic route: the buyer pays from its account to your account at a Russian bank. Messages between banks go through SWIFT, with some foreign banks through the Russian SPFS, the Bank of Russia’s financial messaging system, and yuan settlements may go through China’s CIPS system.

Pros: a minimum of intermediaries and clear documents. Cons: today this route works in far from all directions. The buyer’s bank may refuse to send a payment to Russia, a correspondent bank may return the money, and the processing time is hard to predict.

If direct transfers from your buyer work reliably, there is no need to change anything: this is usually the simplest route. Problems start when payments go through only every other time, come back or sit in reviews for weeks.

Letter of credit and documentary collection

Letter of credit: the buyer’s bank undertakes to pay the exporter when the exporter presents the agreed shipping documents. The instrument protects both parties, but it costs more than a transfer, requires precise documents and is not available for every pair of banks.

Documentary collection: the bank releases the documents for the goods to the buyer only against payment or acceptance. This is simpler than a letter of credit, but the bank is not responsible for payment. It simply does not hand over the documents until the buyer pays.

Both instruments work well for large deliveries and new buyers, provided the parties’ banks have working correspondent relationships.

Payment through a payment agent

If a direct transfer does not go through, the buyer pays a payment agent in a jurisdiction that is convenient for the buyer. On the exporter’s payment order, the agent credits roubles to the exporter’s account at a Russian bank. For the buyer, this is an ordinary payment to bank details in a country it understands. For the exporter: roubles in the account and documents for currency control.

What to look at when choosing an agent:

• in which jurisdiction and currency the agent accepts the payment, and whether that route works right now;
• at what rate the foreign currency is converted into roubles, what the fee is, and whether this is written down before the buyer pays;
• what deadline for crediting the roubles is written in the agreement;
• which documents you will receive: the agency agreement, the payment order, confirmation of the buyer’s payment, the agent’s report.

Which method to choose

• A new buyer, first deliveries. Full or partial prepayment by direct transfer if it goes through, or through an agent if it does not.
• A large one-off delivery. A letter of credit, if the parties’ banks support it. If not, prepayment in installments tied to the shipment stages.
• A regular buyer and regular shipments. A stable route where the terms of each payment are known in advance. If the route goes through an agent, it matters that the agent can be replaced in case the route closes.
• A buyer in a country where settlements are difficult. Payment through an agent in the jurisdiction from which the payment actually gets through, with a clause on this in the contract.

What to build into the contract

• Price currency and payment currency. If the price is in dollars but the buyer will pay in yuan or dirhams, specify how and as of what date the amount is converted.
• A payment deadline with a margin for the route. The bank will monitor this deadline as the repatriation deadline.
• Payment through an agent or a third party. If this option is possible, provide for it in the contract or a supplementary agreement. This makes it easier for the bank to link the incoming payment to the delivery.
• Bank charges. Who bears them: OUR, SHA or BEN. Otherwise the proceeds will arrive short, and you will have to explain the difference.
• Bank details. It is better to state them in the invoice or a separate annex rather than in the body of the contract. Bank details change more often than the contract.
• Payment terms. Prepayment, partial prepayment, deferred payment. With new buyers, prepayment reduces the risk of non-payment.

Documents for the bank

Your bank expects the contract (above the threshold amount it is registered with the bank), invoices, delivery documents and documents on the incoming money. If the buyer paid through an agent, the agency agreement, the payment order and the agent’s report are added. More on tracking proceeds in the article on export proceeds control.

Collect the documents right away for each shipment and each payment. Reconstructing them six months later, when the bank asks a question, is much harder. If the buyer pays in installments, ask it to state the invoice number in every payment. Then each part is tied to a specific shipment, and unexplained balances do not pile up in the contract statement.

If the buyer cannot pay

First find out exactly where the payment gets stuck: at the buyer’s bank, at a correspondent bank or on entry into Russia. The solution depends on this: change the sending bank, the currency or the route, or switch to payment through an agent. If the payment deadline is approaching, sign a supplementary agreement before it expires and pass it to the bank. If the money is seriously stuck, read about the lawful instruments for repatriating proceeds.

VEDmost selects an agent from our pool for the buyer’s country and currency. We write the conversion rate and fee into the payment order before the buyer pays, and the deadline for crediting the roubles into the agency agreement. We put together the documents for currency control. Clients don’t pay us separately: the broker’s fee is paid by the executing agent. More on the export payments and repatriation of export proceeds pages.