Exporters must decide for themselves which payment
conditions to accept. They must assess the financial status of their buyers and
act accordingly. Some information can be obtained from bank references that
indicate a client's creditworthiness. Although such reports are useful, they
cannot provide all the desired information nor do they place any responsibility
on the bank that issues them. Exporters using borrowed working capital are
usually subject to stringent conditions concerning the buyers they can sell to,
and on what payment conditions.
When entering into contracts and deciding on payment
terms, sellers should investigate the identity of their buyers. International
trading groups often work through foreign and local subsidiaries whose
commitments are not necessarily guaranteed by the parent firm, even though they
may trade under the same or similar names. When in doubt a seller can demand a
guarantee from the parent firm that it accepts responsibility for the contracts
with a given subsidiary.
In some countries the monetary authorities dictate
payment policy for exports, for instance by insisting that all exports must be
covered by letters of credit to avoid possible loss of foreign exchange. This
kind of blanket regulation results in some of the worlds largest corporations
with impeccable credentials being asked to establish L/Cs. Many buyers simply
refuse to establish letters of credit, and those that do establish them
calculate the cost and inconvenience involved. Ultimately therefore it is the
grower who pays for such bureaucratic attitudes.