For SMEs taking their first steps as overseas exporters, one of the biggest concerns can be ensuring that they are paid promptly for their goods from their customers.

Distance, language barriers and variations in the way that business transactions are carried out can all contribute to difficulties for SMEs.

While these challenges can seem unavoidable, there are steps that you can take to ensure that the process runs as smoothly as possible.

Common payment methods for overseas customers

When it comes to receiving payment from an overseas customer, there is not a one size fits all and there a number of ways that your customers may choose to pay.

• Cash in advance 

This is the preferred payment method for most exporters and is particularly beneficial when you are dealing with new customers. Choosing this payment arrangement means that goods will need to be paid for before they are shipped to the customer, so is a great way to guarantee payment.

• Using electronic transfer 

There are a number of ways to do this, including SEPA, which allows credit transfers to be made between banks and firms within 30 European countries.

• By a banker’s draft  

A bankers draft is a cheque that is prepaid and guaranteed by the overseas customer's bank. This is preferable to payment by a normal cheque, but there is still a delay before currency items are cleared, making the value of the payment subject to fluctuations in the exchange rate.

• By cheque 

If an overseas customer prefers to pay by cheque, you should always wait until it has cleared before you ship the goods.

Hints and tips

• Deal with overseas customers in the same way you would a UK customer. Do not commit to a deal or payment method until you are sure that the foreign company is a reliable payer.
•  Be sure that you have implemented a robust non-payment plan. Late payments will adversely affect your cash flow and a sudden drop in the exchange rate could mean that you will lose money on the original deal.
•  You can take out insurance against non-payments which will ensure that some of the money is recovered, there is no guarantee that you will be able to gain back the entire cost of the transaction, so it’s important that you manage your expectations in this sense.