Shipped Is Not Paid: 6 Rules for Export Payment Terms So Foreign Buyers Actually Pay You

Most exporters celebrate the wrong moment. The container leaves the port, the invoice goes out, and the sale is booked. But a shipment is not a payment. Between the day your goods leave and the day the money lands, you are the unsecured lender to a company in another legal system, another currency and often another language.

The numbers show how common that position is. In its 2025 Payment Practices Barometer, the credit insurer Atradius found that 48% of B2B sales in the United States are made on credit, and that 43% of credit-based B2B sales in North America were overdue. In the United Kingdom the same survey found 47% of B2B invoices overdue and bad debts averaging 10% of invoices. Those are domestic figures. Add distance, a foreign court and a currency you do not control, and the risk only grows.

After more than a century of selling abroad, and today in more than 75 countries, our group has learned that the payment term is not an administrative detail at the bottom of the contract. It is a credit decision, and it deserves the same discipline as any other decision about where your capital goes. Here are the six rules we use.

Rule 1: Choose the term by the risk, not by what the buyer asks for

The U.S. International Trade Administration describes five basic ways to get paid in international trade, and they form a ladder from safest for the seller to safest for the buyer:

• Cash in advance. The buyer pays before you ship. No risk for you, maximum risk for them.
• Letter of credit. A bank commits to pay you if you present the documents the credit requires.
• Documentary collection. Your bank sends the shipping documents to the buyer's bank, which releases them only against payment or an accepted bill. Cheaper than a letter of credit, but no bank guarantees the payment.
• Open account. You ship, the buyer pays in 30, 60 or 90 days. Cheapest and most competitive, and the riskiest for you.
• Consignment. You are paid only when the goods are resold. You own the stock until then.

Every new buyer should start as high on that ladder as the market allows, and climb down only as they earn it. Buyers will almost always ask for open account, because it is the best term for them. That request is a negotiation, not a fact. In our experience a serious importer understands that a first order on secured terms is normal, especially when the relationship is new.

Rule 2: A longer payment term is a loan, so price it like one

When you give a distributor 90 days, you are financing their inventory for a quarter. That money has a cost: your own working capital, your credit line, or both. Many exporters grant the term and forget to put it in the price.

Do the arithmetic before you agree. If your cost of capital is 8% a year, 90 days of credit costs you roughly 2% of the invoice before a single late payment. If the term is not in your price, you are giving away part of your margin to finance your customer's balance sheet. I wrote about building every cost into the export price in the margin stack: six rules for export pricing. The payment term belongs in that stack, next to freight, duties and the distributor's margin.

The same logic runs the other way. If a buyer pays in advance, you can offer a small discount and still come out ahead, because you have removed both the financing cost and the risk.

Rule 3: If you use a letter of credit, read it before it is issued

A letter of credit looks like certainty, and for many exporters it is the right tool. But under the International Chamber of Commerce rules that govern most of them, UCP 600, banks deal with documents, not with goods. They pay against a set of papers that must match the terms of the credit exactly. A misspelled company name, a late shipment date or a missing certificate is a discrepancy, and a discrepancy lets the bank refuse to pay.

This happens far more than most exporters expect. Industry estimates, frequently attributed to the ICC, suggest that 60% to 75% of letter of credit presentations are rejected on first presentation. Each rejection delays payment and hands the buyer an opening to renegotiate the price while your goods sit in their port.

The fix is simple and almost nobody does it: ask the buyer to send you a draft of the credit before their bank issues it. Check that the shipment dates are realistic, that every document requested is one you can actually produce, and that the expiry leaves time to present. If the buyer's bank or country is weak, ask for a confirmed letter of credit, where a bank you trust adds its own promise to pay.

Rule 4: When you sell on open account, insure it

Open account is where international trade is moving, because buyers demand it and competitors offer it. You can often accept it safely if you do not carry the risk alone.

Export credit insurance pays you if a buyer fails to pay for commercial reasons, such as insolvency or protracted default, and in many policies for political reasons too, such as currency transfer restrictions. Public agencies offer it, like the Export-Import Bank of the United States or CESCE in Spain, and so do private insurers such as Atradius, Allianz Trade and Coface. The insurer's credit limit on a buyer is also free intelligence: if they will not cover a customer, ask yourself why you would.

Insurance also changes your financing. Many banks will lend against insured foreign receivables on better terms than uninsured ones, which turns an overdue risk into working capital.

Rule 5: Let buyers earn open account with a track record

The safest way to move a customer down the ladder is gradually. A pattern that works:

• First orders: cash in advance or a letter of credit.
• After several orders paid on time: documentary collection, or a partial deposit with the balance on short terms.
• After a year of clean history: open account with a written credit limit, reviewed at least once a year.

The credit limit matters more than the term. Thirty days on an unlimited balance is riskier than 90 days on a capped one. Set a maximum exposure per customer, tie it to their financial statements and payment record, and stop shipping when it is reached, even if the sales team protests. The same discipline applies when you choose an international distributor: the best partners are comfortable with rules that protect both sides.

Rule 6: Agree the Incoterm, the currency and the collections routine at the same time

The payment term does not live alone. The Incoterm, the ICC's standard rules for who pays for and bears the risk of the goods at each stage of the journey, decides when the risk passes to the buyer and which documents you will hold. The currency decides who absorbs exchange rate moves between invoice and payment, which I covered in five currency rules for companies that sell abroad. Negotiate the three together, because a good payment term can be undone by the wrong Incoterm or the wrong currency.

Then run collections like a lender, not like a salesperson. Send a polite reminder before the due date, call on the first day a payment is late, and escalate on a calendar, not on a feeling. Small overdue amounts ignored for months become large ones.

Key Takeaways

• A shipment is not a payment; until you are paid, you are lending to your customer.
• Start every new buyer on secured terms and let them earn open account through a paid track record.
• Longer terms are a loan: price the cost of capital into the export price.
• Review every letter of credit in draft; most first presentations are rejected for document discrepancies.
• Insure open account receivables and treat the insurer's credit limit as a signal.
• A written credit limit per customer protects you more than a shorter term.
• Negotiate the payment term, the Incoterm and the currency as one package.

Frequently Asked Questions

Which payment term is best for export?

The best term is the one that matches the risk of the buyer and the country. Cash in advance is safest for the seller, open account is most attractive to the buyer, and a letter of credit or documentary collection sits in between. Most exporters start new customers on secured terms and move to open account as trust is earned.

How does an export letter of credit work?

The buyer asks their bank to issue a credit in your favor, promising to pay when you present specific documents, such as the bill of lading, invoice and certificates. After shipping, you present those documents through your bank. If they comply exactly with the credit, the bank must pay; under UCP 600 it has up to five banking days to examine them.

What are open account payment terms?

Open account means you ship the goods and the buyer pays on an agreed date, typically 30, 60 or 90 days later. It is the cheapest and most competitive option, but you carry the full risk of non-payment, which is why exporters often combine it with credit insurance and firm credit limits.

What are the common payment methods used in export trade?

The five standard methods are cash in advance, letters of credit, documentary collections, open account and consignment. They range from the safest for the exporter to the safest for the importer, and many companies use different methods for different customers.

One Thing to Do This Week

List your ten largest foreign customers, their payment term, their current balance and their credit limit. If any of them has no written limit, or owes you more than you could afford to lose, fix that before the next container ships.

For more on building an export business that lasts, read how to choose an international distributor, or explore the Manzanos Enterprises group, a family company founded in 1890 that today sells in more than 75 countries.