Reduce Risk

Pricing & Payment Terms

How you determine the terms and conditions of your pricing and payment profiles impact on your commercial risk.


Introduction

To assist your considerations we have prepared the following to assist you in determining your export pricing policy.

Pricing:

The pricing of a contract will reflect the costs and responsibilities of the contracting parties. The more responsibilities, the more costs you have to cover and fix in the contract.

Export pricing usually starts with the domestic price (e.g., cost of goods, plus profit). Discounts for overseas representation may then be factored in. From that price, Incoterms determine additional costs.

The main options for export pricing are:

  • Ex-Works The buyer has to organise (and pay for) transport from the factory, insurance and any applicable import taxes and tariffs.
  • FAS Free Alongside Ship (at a named port of export e.g. Liverpool). This includes the EX-Works price, plus your costs to transport, unload, and deliver the goods alongside the departing vessel or aircraft.
  • FOB Free on Board (at a named port of export e.g. Felixstowe). This includes the FAS cost, plus the cost to load the goods onto the carrier. The buyer pays for cargo insurance, transportation to the destination, and any applicable import duties and taxes.
  • C&F Cost & Freight (to a named overseas port e.g. Singapore). This includes all FOB costs, plus all transportation costs to the foreign port. The buyer pays the cargo insurance, import duties and taxes to clear customs.
  • CIF Cost, Insurance & Freight (to a named overseas port e.g. New York). This includes all C&F costs, plus all cargo insurance. The buyer pays only the import duties and taxes to clear customs.

For further information regarding international pricing and payment terms see IncoTerms 2020 from the International Chamber of Commerce.

The other major consideration when the parties are based in different currency zones. One will have to assume currency risk; see: Foreign Exchange.


Payment Terms

The payment terms agreed in a commercial contract will reflect the risks run by both supplier and buyer.

There are four primary payment terms:

  1. Advance Payment\Cash.
  2. Letters of Credit.
  3. Documentary Collections.
  4. Open Account.

To review these and decide which is best for your circumstances, see: The ExportersAlmanac - Payment Methods.

ExportersAlmanac_Payment_Methods.png

You should note, however, that in exporting, advance payment is rare. Foreign buyers generally will only pay fully up front for smaller shipments. Although they might agree to a partial down payment if it is the only way to get the goods, they will usually insist on payment upon delivery, or preferably sometime after delivery. Therefore, you are likely to push for a Letter of Credit or Documentary Collection.

N.B. As a variation on a theme for options 2, 3 and 4 you can also consider the discounting of your invoices with Ebury (see the Section: Find Funding).