The pricing of a contract will reflect the costs and responsibilities of the contracting parties. The more responsibilities, the more costs you have to cover and fix in the contract.

Export pricing usually starts with the domestic price (e.g., cost of goods, plus profit). Discounts for overseas representation may then be factored in. From that price, Incoterms determine additional costs.

The main options for export pricing are:

• C&F Cost & Freight (to a named overseas port e.g. Singapore). This includes all FOB costs, plus all transportation costs to the foreign port. The buyer pays the cargo insurance, import duties and taxes to clear customs.
• CIF Cost, Insurance & Freight (to a named overseas port e.g. New York). This includes all C&F costs, plus all cargo insurance. The buyer pays only the import duties and taxes to clear customs.
• DAP Delivery At Place. The seller is responsible for the delivery of the goods to the named destination at the buyer. The costs of carrying out all the necessary import formalities are expressly excluded. These costs – including all import duties, taxes incurred when importing to the country of destination - are borne by the buyer.
• DDP Delivery Duty Paid (to a named place of destination e.g. DDP Sydney). This includes all CIF costs, plus any applicable import duties, taxes and other costs to clear the goods through customs.
• Ex-Works\Ex-Warehouse The buyer has to organise (and pay for) transport from the factory, insurance and any applicable import taxes and tariffs.
• FAS Free Alongside Ship (at a named port of export e.g. Liverpool). This includes the EX-Works price, plus your costs to transport, unload, and deliver the goods alongside the departing vessel or aircraft.
• FOB Free on Board (at a named port of export e.g. Felixstowe). This includes the FAS cost, plus the cost to load the goods onto the carrier. The buyer pays for cargo insurance, transportation to the destination, and any applicable import duties and taxes.

For further information regarding international pricing and payment terms see IncoTerms 2020 from the International Chamber of Commerce.

The payment terms agreed in a commercial contract will reflect the risks run by both supplier and buyer.

There are four primary payment terms:

• Advance Payment\Cash.

Payment in advance before shipment may seem to be the most desirable method of payment as it supports your working capital and you will receive payment before the ownership is transferred to the buyer. However, this is the least attractive option for the buyer as it increases risks for the buyer.

Advance payment could be considered essential when you have limited confidence in your buyer or when the political or economic situation in your buyer’s country increases the risk of non-payment.

• Letters of Credit.

A Letter of Credit is a commitment by a bank on behalf of the buyer that payment will be made to the exporter, provided that the terms and conditions set out in the Letter of Credit have been met. This offers a guarantee to the seller that they will be paid, and the buyer can be sure that no payment will be made until the goods have been shipped.

Suppliers must ensure that all the requirements listed in the agreement such as latest shipping date and mode of transport have been adhered to, and that all documentation requested can be provided; otherwise your bank will not be able to claim payment from the issuing bank.

• Documentary Collections.

These work like Letters of Credit, however, there is no bank guarantee of payment. The shipping documents, together with a bill of exchange are sent to the Buyer’s bank. Once the Buyer accepts the bill of exchange, they are legally liable for payment and the bank releases the shipping documents to the Buyer.

This method provides you, the exporter, with greater control than with open account transactions as documentation is passed through banking systems – and bills of exchange (usually) provide a better claim for payment than contracts and invoices.

• Open Account.

With Open Account, payment is made after the Supplier has sent the goods to the Buyer. This, therefore, represents the greatest risk to the Supplier. The demand for your product, your price and how badly you need to do the business will all affect what terms you decide to offer. To mitigate the risk, it may be an option to take out credit insurance.

Letters of Credit, Documentary Collections and Open Account can also allow for:

1. Cash payments I.e. payment is made upon shipment\receipt of goods.
2. Term payments i.e. payment is made after an agreed period following shipment\receipt of goods.

You should note, however, that in exporting, advance payment is rare. Foreign buyers generally will only pay fully up front for smaller shipments. Although they might agree to a partial down payment if it is the only way to get the goods, they will usually insist on payment upon delivery, or preferably sometime after delivery. Therefore, you are likely to push for a Letter of Credit or Documentary Collection.

N.B. You can also consider the discounting of your invoices with Ebury (see the Sub-Section in: Find Funding).