Factors Affecting Export Payment Terms

Factors Affecting Export Payment Terms

The following factors affect the payment decisions in the international market:

(a) Nature of Product: In the case of perishable and consumer goods long term credit is not desirable. Therefore, the payment method should be "Documents against Payment". However, in the case of capital goods, the exporter may allow "Deferred Payment terms".

(b) Creditworthiness of Buyer: It is desirable to inquire about the creditworthiness of new importer through banking channel or a deputed agent in the foreign country. If the creditworthiness of the importer is doubtful it is desirable to go for "Documents against Payment".


(c) Exchange and Import Controls in Importing Country: The exporter must consider exchange and import regulations in the importer's country. it should be ensured that the importer is in a position to fulfil all the formalities laid down in connection with the payment terms agreed between them.

(d) Competitors' Credit Terms: An exporter must take into consideration the payment terms offered by the competitors. If the payment terms of the competitors are stringent, liberal payment terms can help the exporter to increase his market share.

(e) Economic Situation in Importer's Country: If the importing economy is facing severe economic crisis, an exporter should not risk his payment by extending credit. The economic crisis may result in devaluation, government interference and control on remittance of finance between countries.

(f) Size of Export Order: If the size of the order is small, an exporter should prefer "Documents against Payment". On the other hand, if the size of the order is big, an exporter can allow "Documents against Acceptance", as a term of payment.

(g) Financial Position of the Exporter: If an exporter faces a serious financial crisis, he may not prefer to extend long term credit to a foreign buyer. Under a very stringent financial condition, an exporter may also ask for advance before the execution of the order.

(h) Relations with the Importer: If the exporter has good and sustaining trade relations with the importer, he may not hesitate to extend liberal export terms to the importer.


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