Check, Wire transfer, Proforma invoice, Incoterm®
The Company's First Export Sale
My business dinner guest sat on the board of directors for a company preparing for their first export sale. This new venture thrilled the gentleman as he anticipated the prospect of the company’s initial entry into Mexico. We discussed the benefits of the sale and examined some of the logistical details. Since he understood many of the twists and turns, he surprised me when he posed a basic question: “If we put the sale together, how will we get paid?”
Stunned and taken aback, I asked, “What do you mean, ‘How will we get paid?’ I would assume the buyer and seller have already agreed to the payment terms.”
Pesos or Dollars?
He replied, “I don’t know all the arrangements made by management. My basic question is: Will they pay us in pesos, or dollars? Will the payment arrive by a check or a wire transfer?”
Admittedly, as a board member, he would not necessarily concern himself with knowing all the details of the transaction and I do not intend to criticize him. However, it continues to amaze me how some companies naively decide to go global. We went back to basics as I explained how payments work and the importance of having their agreement stipulate the currency and the method of payment.
Use Contracts to Eliminate Surprises
A well-written agreement, such as a contract, or a proforma invoice, will avoid misunderstanding among all parties. It should clearly indicate key information including the intended method of payment, as well as merchandise description, pricing and shipping information, Incoterm®, etc., to eliminate surprises down the road.