Have you ever ordered something with a credit card and when it arrives it’s not what you expected? Disputing that charge is easier than ever. A few clicks, the charge is removed and the inquiry process begins.
Now reverse the scenario. Have you ever taken an order from an international customer who pays with a credit card, sent your goods as agreed, only to end up with a chargeback? Now you have an unpaid invoice from a customer in a foreign country. What recourse do you have? Small businesses are particularly vulnerable to this scenario. Even if the company prevails in a dispute, it takes time and during that time, cash flow can be severely impacted. Memorize this equation:
Credit Card Payment ≠ Cash in Advance
Think about it. Your company charges a credit card. It takes 30 days to hit the buyer’s statement. They have 90 days to dispute and let’s say 60 days to resolve the dispute. Your company is not getting cash in advance. Your company is offering 180 days credit terms.
One way to address this dilemma is to demand actual cash for payment in full upfront. Good for you, not so much for the buyer. Another way is to deliberately offer credit terms, then protect your foreign receivables from nonpayment with export credit insurance. Depending on the export credit insurance policy you choose, you can offer credit terms and cover up to 95 percent of your foreign receivables at a cost of $.65 per $100 value of the invoice. A $30,000 invoice could be covered for $28,500 at a cost of $195. Much less than you may lose on a chargeback.
And in case you’re thinking exporting doesn’t apply to your company, here’s a few myths that have already been busted:
My company is too small. 42 percent of exporters have fewer than 19 employees.
I’ll lose my shirt. Not if you’re insured.
I don’t need to export. Remember 2008?