Tuesday, January 27, 2009

Exporter Payments Contrast and Comparison

Exporter Payments Contrast and Comparison: Cash (Prepayment) and Open Account

Cash (Prepayment) Advantages: Zero commercial risk from buyer insolvency, contractual dispute or breach or transaction uncertainty. Buyer may be unknown or in a grey area in its financial stability which is immaterial. Quick and cleared capital either for reinvestment or divestment. Cash pays the bills. May encourage high volume sales if discounts are generous.

Cash (Prepayment) Inconveniences: Buyer assumes all commercial risk therefore may deter importers particularly at present. Encourages one-off deals and little incentives to develop reliable buyers or clients. Reinforces the possible myth that price outweighs quality or relationship. Lack of customer loyalty may see shift in overall product or service demand due to competitive interests.

Open Account Advantages: Buyer is a reliable, consistent and well known customer. Reduces delays in delivery and order processing, provides historical cycles data to allow seasonal trends and predictions to minimize inventory and indicates low risk of insolvency, minimal to no contract disputes and low level of uncertainty. Attracts reputable firms and develops strong partner-like business relationships.

Open Account Inconveniences: International accounts have higher risk of complexity, buyer insolvency, contractual dispute/breach or transaction uncertainty. A good customer can suddenly start missing payments. If half of your customers start doing that over a period of three months your collections and liquidity will drop and your company may become cash starved. Plenty of businesses qualify for these inconveniences at this time in their rapid and increasing demise.

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