Risks of working with a payment agent and how to reduce them

Paying through an agent is lawful and has long been standard practice for imports. But the agent stands between your money and the supplier, and this stretch has its own risks. Below are the six most common ones and ways to reduce them. A general list of risks is collected in the glossary: payment agent risks.

The money has gone, but the payment has not been executed

The most expensive risk. You transferred roubles to the agent as a prepayment, but the payment to the supplier did not go out. The reasons vary: the route closed, the funds were held at an intermediary bank, the agent itself ran into problems. While the money is in the agent’s account, you are its creditor, and getting the money back depends on its goodwill and solvency.

How to reduce it:

• if you need a guarantee, the roubles wait for execution in an escrow account at a bank instead of going to the agent in advance;
• the execution term is written into the agency agreement, not promised in correspondence;
• the agreement sets out what happens if the payment is not executed: what happens to the money and within what time.

The price changes after payment

A rate “as of the execution date”, a fee “from”, bank charges “as incurred”. As a result, the amount in roubles becomes known only after the debit. The difference can be noticeable, especially when the rate jumps.

How to reduce it: the rate and fee are fixed in the payment order before the roubles are debited. Compare not the percentage but the total: how many roubles went out per unit of currency the supplier received.

There is also the risk in the contract itself. If the price is in foreign currency and your revenue is in roubles, the currency risk is yours between signing and payment. It is reduced through payment timing, the contract currency and sometimes forward contracts. This is a decision for the company’s finance team, not for the agent.

Returned payment

The beneficiary’s bank may not accept the payment: it was not satisfied with the payer, the beneficiary name did not match, there were questions about the goods. The money goes back along the chain. Each bank on the way may deduct a fee. If there was a conversion, the reverse conversion will be at a different rate. All this takes time.

How to reduce it:

• check the beneficiary’s details against the contract and invoice before the payment;
• find out in advance whether the supplier’s bank accepts payments from the chosen route;
• state in the agreement who bears the costs of a return.

If the route has closed, the way out is another route. A single agent may not have one.

Unknown payer and sub-agents

The agent may pass the payment to a partner, and you find out about it from the supplier’s statement. For the beneficiary’s bank, this is an unfamiliar payer. The supplier has questions, and you lose sight of who is responsible for the money.

How to reduce it: a sub-agent is engaged only with your consent. Under the Russian Civil Code, the agent remains liable to the principal for the sub-agent’s actions. It is worth knowing the payer’s name and country before the payment is sent. More: sub-agent.

Documents that do not close the payment

A report without the rate, a completion certificate without a reference to the payment order, a payment confirmation that cannot be matched to the invoice. Such documents are hard to show to the bank where the contract is registered, and to customs if it checks the value of the goods. For currency control and accounting, this means extra work after the fact.

How to reduce it: ask for a sample report before the first payment. Check that it contains the amount in roubles, the rate, the fee, the amount in foreign currency, the date and the payment confirmation.

Restrictions on the agent’s side

The agent has its own foreign companies and banks. If one of them becomes subject to restrictions or its accounts are blocked, payments in transit may get stuck. Clients whose deals are entirely lawful can be affected too. It is hard to find out about this in advance: an agent rarely reports problems with its partners before a payment gets stuck.

How to reduce it: check the agent as a counterparty, do not keep all payments on one channel, and for large amounts choose an agent backed by a surety. More on checks in the article How to choose a payment agent.

What a broker covers and what remains with you

A broker with its own network of agents removes some of the risks through the way the work is set up. The term is set in the agency agreement and the rate and fee in the payment order, all before the debit. If you need a guarantee, the roubles wait for execution in a special escrow account at a Russian bank: this scheme is available on request, for an additional fee. If a route closes, the broker looks for another agent in the network, and if there is no lawful route, it says so before the roubles are transferred. A sub-agent is engaged only with your consent. The broker prepares the agency agreement and payment orders; the completion certificate and report come from the agent. You can ask for an agent backed by a surety from a major exporter: some agents in the network have one.

What remains with you: the reliability of the supplier and the currency risk of the contract.

Before the first payment, ask the agent or broker five questions:

1. Where are the roubles before the payment is executed?
2. What execution term is written in the agency agreement?
3. Where are the rate and fee fixed, and can they be changed after the debit?
4. Which company, and from which country, will send the payment?
5. What does the report look like after execution?

If any question has no clear answer, that is the risk. The supplier is worth checking before payment: how to do this is described in the article How to check a foreign counterparty.

How payment protection works at VEDmost is described on the Payment protection page. If a payment is already stuck or an agent has refused, start with the Complex payments page.