Free Online Course in International Business

Knowledge Statement

Knowledge of Methods of Payment: Letters of Credit, Documentary Collections, Cash in Advance

Activity

Divide the class in half (exporter and importer). Present each side with the following scenario:

Importers 

·        You are a new company (in business two years) and you are interested in placing a fairly large order with your foreign supplier.

·        Your goal is to purchase the products and resell them to your customers. 

·        You need the product to be shipped within two weeks, and it will take six weeks for you to receive the product once it ships.

·        Once you receive the product, you will repack it and ship it to your customer within one week. You have agreed to receive payment from your customer 60 days after you ship.

·        In order to fund this scenario, you have requested open account payment terms from your vendor at Net 120 Days on Invoice and will pay in their currency.

Exporters

·        You are a well-established company that has been selling your products overseas for 15 years, although you have never sold to a customer in this new market.

·        You currently hold inventory of the product this customer wants to purchase, so you do not need to manufacture additional products.

·        You never extend open payment terms to new customers; however, this customer is also talking to your biggest competitor and may place the order there if you do not comply.

Task

Negotiate payment terms and discuss each group’s needs and concerns. 

Is there a compromise available that would please both companies?

Alternatives

To create new scenarios, you can include one or all of the following caveats:

1.                     the currency in the importer’s country has devalued by 25%.

2.                     there are rumblings of a dock strike in the importer’s country.

3.                     the exporter wants to conduct a credit check in order to extend payment terms. The importer has agreed to supply the necessary information and will wait four weeks for the shipment to depart.

4.                     the exporter has to manufacture the necessary products and will require funds to purchase raw materials.

5.                     the exporter has never sold products overseas.