Overcoming Payment Issues between China UnionPay and Russia: A Comprehensive Guide
Risk Analysis and Control of Special Payment Methods
by：VIPUTRANS
2020-07-27
With the intensification of market competition, buyers' appetites are getting bigger and bigger, and gradually they are no longer satisfied with the prices and product support provided by sellers, and shift their attention to financial support. In this way, there have also been many empty-glove white wolf customers who intend to use the seller's funds to expand their business. Therefore, special payment methods have emerged.
For suppliers, special payment methods are something that people love and hate. If they are not provided to customers, they may not be able to take orders, but providing them will cause financial pressure or increase potential risks. My personal opinion is that there is no business without risk, only unattractive profits, as long as the risks are within the controllable range, as long as the profits are sufficiently tempting, and as long as losses occur, they will not hurt the bones. Under circumstances, the special payment method requested by the customer does not mean a scourge. So, today we will talk about the risk control of this special payment method.
The so-called special payment terms refer to all payment methods except T/TBEFORESHIPMENT and L/CATSIGHT. There are more of them as follows:
1.T/TAGAINSTB/LCOPY
2.LCXXDAYS.
3.OAXXDAYS
First, see the copy of the bill of lading for payment.
At present, this payment method has gradually become 'payment before arrival'. The saying that buyers often use when persuading sellers to accept this payment method is: 'Don't worry! I can't get the bill of lading in your hands, so what else do you have to worry about?' Let us recognize the potential risks of this payment method:
1. Once the customer refuses to pay, the seller has to bear the return sea freight.
2. Some destination ports cannot accept return shipments.
3. If it is determined that there are costs incurred at the port of destination when the return is confirmed, the costs will be borne by the seller.
4. In some destination ports, goods are no longer allowed to be returned without being picked up after a certain period of time has been stacked, and there will be mandatory auctions.
5. The freight forwarder may privately place orders to buyers without the seller's consent.
6. Some countries may only need a copy of the bill of lading to release the goods.
The six rules seem to be quite risky, but they are all based on a prerequisite 'buyer refuses to pay'. Therefore, under normal circumstances, we generally make the following preparations for this type of payment:
1. Inspect the customer's credit status in many ways, such as requesting and analyzing the customer's financial report, such as understanding the supply chain's assessment of the customer, such as providing such payment methods after working with the customer for a period of time.
2. Understand the rules and regulations of the port of destination, and see if there are any unfavorable regulations for the seller.
3. As much as possible to increase the proportion of payment before shipment.
4. Try to collect sea freight before shipment.
5. Try to use your own freight forwarder. This point needs to be specifically explained that the use of CIF and the use of their own forwarder are two concepts, because some customers will recommend their own forwarder to the seller on the grounds that the seller’s forwarder price is too high. The seller will contact the seller directly and pay the seller. Freight forwarding, but this situation is actually almost the same as FOB in terms of risk control. The reason why it is recommended to use your own forwarder as much as possible is because in the case of using buyer’s forwarder, the forwarder may unscrupulously release the order to the buyer in advance, which is actually very simple.
6. If you really feel it is necessary, let CITIC Insurance intervene. Even if you do not take out the insurance in the end, it is better to investigate the customer's credit status.
Second, the forward letter of credit.
The risk of a letter of credit does not actually lie in the forward or spot date, but in the letter of credit itself, because the impact on the seller lies in the financial pressure, and this financial pressure can be through, for example, 'forfaiting' Such financial means. I have a senior documentary friend who once said, 'There is no discrepancy letter of credit in the world.' I can't study the accuracy and rigor of this sentence, but it is true that there are often some soft terms in the letter of credit. Sellers are caught off guard, such as:
1. The letter of credit requires the owner's bill of lading, but in fact it can only be shipped on behalf of the bill of lading.
2. The letter of credit requires FORMA, but in fact it can only issue C/O.
3. The letter of credit requires a third-party inspection report, but it cannot be issued in the end.
In this way, these soft terms are a test for the seller's ability to review orders. It is recommended:
1. Before the buyer opens the original letter of credit, a draft letter of credit is required for the seller to confirm.
2. Minimize the existence of discrepancies. The risk of refusal to pay is one thing. The most important thing is that every discrepancy is money.
In addition, some countries or banks with poor credit ratings, such as Venezuela, will not accept letters of credit.
Finally, OA, OPENACCOUNT.
For some countries, OA has almost become a necessary payment method, because the entire country’s business chain is run through CREDIT. Consumers use credit cards to pay in installments. Dealers press upstream funds, and importers are bound to get the money. Transfer this part of the financial pressure to exporters. I believe that as long as all companies export through the OA payment method, they must have the intervention of CITIC Insurance, refusing to pay 80%, and non-payment to pay 90%. This makes this seemingly risky payment method actually not so. Big risks, in addition to financial pressure:
1. The biggest risk of OA is not after shipment, but before shipment. Because if the buyer cancels the order before the shipment, the seller is not protected by 'CITIC Insurance', so it is important to charge a certain percentage of the deposit.
2. If you can coordinate and communicate, try not to submit a credit insurance claim as a last resort, because this will affect the seller's insurance premium for all subsequent orders.
3. Credit insurance has strict restrictions on OA’s SHIPPER, CONSIGNEE and payer. If there must be a discrepancy between CONSIGNEE and the insurer, credit insurance must be notified in advance, otherwise there may be non-insurance. This situation is actually very common. For example, the underwriter is in Mexico, but due to certain tax avoidance needs, CONSIGNEE and the payment company are in the United States, then either it is proved that the American company is a subsidiary of a Mexican company, or the contract states that the payment is made by the United States The company pays, otherwise the Mexican company will assume all the payment responsibilities, otherwise trouble is very likely to occur.
Except for the payment method of 100% deposit, almost all payment methods have risks of this kind, but the business is not stopped, because some customers really can't do it without special payment terms. Therefore, for supplier bosses, the main consideration is the financial pressure, the demand for orders and order profits, as well as whether the potential risks can be tolerated.
We have an unsecured credit for a certain customer all year round. Without this credit, the customer's purchases in China will not be possible, but at least they will encounter a lot of trouble. This does not mean that I trust the customer much, but in the face of absolute interests, many things need to be risky, and even if the risk fails, I will not go bankrupt; but for the salesman of the supplier, the payment method stipulated by the company In fact, there is not much work that can be done within the framework. Although sometimes you can use your knowledge to persuade the boss to accept a special payment method, unless you are sure, it is not recommended to be too radical to persuade the company to accept certain original payment methods. Too acceptable special terms. Because, no matter how good the customer’s past record is, nothing can be said. An economic crisis can wipe out everything. This kind of loss may be completely unbearable for a salesperson. Moreover, in this highly competitive era, who can be 100% sure that customers will eventually pay?
No matter how high the profit is, as long as the money is not received, it is just a beautiful number on the financial report. Due to the nature of the business, we have no way to make the risk disappear, but we can try to understand the risk and control it. Prudent operation is more important than anything else. This is a conscientious buyer and advice to all sellers.
For suppliers, special payment methods are something that people love and hate. If they are not provided to customers, they may not be able to take orders, but providing them will cause financial pressure or increase potential risks. My personal opinion is that there is no business without risk, only unattractive profits, as long as the risks are within the controllable range, as long as the profits are sufficiently tempting, and as long as losses occur, they will not hurt the bones. Under circumstances, the special payment method requested by the customer does not mean a scourge. So, today we will talk about the risk control of this special payment method.
The so-called special payment terms refer to all payment methods except T/TBEFORESHIPMENT and L/CATSIGHT. There are more of them as follows:
1.T/TAGAINSTB/LCOPY
2.LCXXDAYS.
3.OAXXDAYS
First, see the copy of the bill of lading for payment.
At present, this payment method has gradually become 'payment before arrival'. The saying that buyers often use when persuading sellers to accept this payment method is: 'Don't worry! I can't get the bill of lading in your hands, so what else do you have to worry about?' Let us recognize the potential risks of this payment method:
1. Once the customer refuses to pay, the seller has to bear the return sea freight.
2. Some destination ports cannot accept return shipments.
3. If it is determined that there are costs incurred at the port of destination when the return is confirmed, the costs will be borne by the seller.
4. In some destination ports, goods are no longer allowed to be returned without being picked up after a certain period of time has been stacked, and there will be mandatory auctions.
5. The freight forwarder may privately place orders to buyers without the seller's consent.
6. Some countries may only need a copy of the bill of lading to release the goods.
The six rules seem to be quite risky, but they are all based on a prerequisite 'buyer refuses to pay'. Therefore, under normal circumstances, we generally make the following preparations for this type of payment:
1. Inspect the customer's credit status in many ways, such as requesting and analyzing the customer's financial report, such as understanding the supply chain's assessment of the customer, such as providing such payment methods after working with the customer for a period of time.
2. Understand the rules and regulations of the port of destination, and see if there are any unfavorable regulations for the seller.
3. As much as possible to increase the proportion of payment before shipment.
4. Try to collect sea freight before shipment.
5. Try to use your own freight forwarder. This point needs to be specifically explained that the use of CIF and the use of their own forwarder are two concepts, because some customers will recommend their own forwarder to the seller on the grounds that the seller’s forwarder price is too high. The seller will contact the seller directly and pay the seller. Freight forwarding, but this situation is actually almost the same as FOB in terms of risk control. The reason why it is recommended to use your own forwarder as much as possible is because in the case of using buyer’s forwarder, the forwarder may unscrupulously release the order to the buyer in advance, which is actually very simple.
6. If you really feel it is necessary, let CITIC Insurance intervene. Even if you do not take out the insurance in the end, it is better to investigate the customer's credit status.
Second, the forward letter of credit.
The risk of a letter of credit does not actually lie in the forward or spot date, but in the letter of credit itself, because the impact on the seller lies in the financial pressure, and this financial pressure can be through, for example, 'forfaiting' Such financial means. I have a senior documentary friend who once said, 'There is no discrepancy letter of credit in the world.' I can't study the accuracy and rigor of this sentence, but it is true that there are often some soft terms in the letter of credit. Sellers are caught off guard, such as:
1. The letter of credit requires the owner's bill of lading, but in fact it can only be shipped on behalf of the bill of lading.
2. The letter of credit requires FORMA, but in fact it can only issue C/O.
3. The letter of credit requires a third-party inspection report, but it cannot be issued in the end.
In this way, these soft terms are a test for the seller's ability to review orders. It is recommended:
1. Before the buyer opens the original letter of credit, a draft letter of credit is required for the seller to confirm.
2. Minimize the existence of discrepancies. The risk of refusal to pay is one thing. The most important thing is that every discrepancy is money.
In addition, some countries or banks with poor credit ratings, such as Venezuela, will not accept letters of credit.
Finally, OA, OPENACCOUNT.
For some countries, OA has almost become a necessary payment method, because the entire country’s business chain is run through CREDIT. Consumers use credit cards to pay in installments. Dealers press upstream funds, and importers are bound to get the money. Transfer this part of the financial pressure to exporters. I believe that as long as all companies export through the OA payment method, they must have the intervention of CITIC Insurance, refusing to pay 80%, and non-payment to pay 90%. This makes this seemingly risky payment method actually not so. Big risks, in addition to financial pressure:
1. The biggest risk of OA is not after shipment, but before shipment. Because if the buyer cancels the order before the shipment, the seller is not protected by 'CITIC Insurance', so it is important to charge a certain percentage of the deposit.
2. If you can coordinate and communicate, try not to submit a credit insurance claim as a last resort, because this will affect the seller's insurance premium for all subsequent orders.
3. Credit insurance has strict restrictions on OA’s SHIPPER, CONSIGNEE and payer. If there must be a discrepancy between CONSIGNEE and the insurer, credit insurance must be notified in advance, otherwise there may be non-insurance. This situation is actually very common. For example, the underwriter is in Mexico, but due to certain tax avoidance needs, CONSIGNEE and the payment company are in the United States, then either it is proved that the American company is a subsidiary of a Mexican company, or the contract states that the payment is made by the United States The company pays, otherwise the Mexican company will assume all the payment responsibilities, otherwise trouble is very likely to occur.
Except for the payment method of 100% deposit, almost all payment methods have risks of this kind, but the business is not stopped, because some customers really can't do it without special payment terms. Therefore, for supplier bosses, the main consideration is the financial pressure, the demand for orders and order profits, as well as whether the potential risks can be tolerated.
We have an unsecured credit for a certain customer all year round. Without this credit, the customer's purchases in China will not be possible, but at least they will encounter a lot of trouble. This does not mean that I trust the customer much, but in the face of absolute interests, many things need to be risky, and even if the risk fails, I will not go bankrupt; but for the salesman of the supplier, the payment method stipulated by the company In fact, there is not much work that can be done within the framework. Although sometimes you can use your knowledge to persuade the boss to accept a special payment method, unless you are sure, it is not recommended to be too radical to persuade the company to accept certain original payment methods. Too acceptable special terms. Because, no matter how good the customer’s past record is, nothing can be said. An economic crisis can wipe out everything. This kind of loss may be completely unbearable for a salesperson. Moreover, in this highly competitive era, who can be 100% sure that customers will eventually pay?
No matter how high the profit is, as long as the money is not received, it is just a beautiful number on the financial report. Due to the nature of the business, we have no way to make the risk disappear, but we can try to understand the risk and control it. Prudent operation is more important than anything else. This is a conscientious buyer and advice to all sellers.
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