Step 6: Pricing your Product or Service and Receiving Payment
Typically, international pricing is more “negotiable” than may be the case domestically and your pricing will be affected by your chosen distribution channel and even the exchange rate of the target market. Either way you want to remain competitive in the minds of the consumer in the target market.
There are a few practical elements you should understand about terms of sale:
- Incoterms – these are internationally agreed rules setting out delivery terms for the goods being traded across borders. They allow both the buyer and seller to agree details on the terms of sale and prevent any future misunderstandings or disputes. Broadly they will set out who is responsible for the cost of transporting goods including any insurance, taxes or duties, where the goods should be picked up from and transported to, and who is responsible for the goods at each step during transportation.
- Export documentation – make sure you establish the types of document you’ll need to provide to enter the market.
- Written quotation – make sure you provide a written quote which deals with the particulars of your product including the size and packaging formats, as well as any potential additional cost for providing export labelling and packaging which you may be charging on to the customer. Setting out the price and delivery terms (Incoterms), the estimated date of shipment on arrival and payment terms and conditions is vital if you are to avoid any disputes further down the line.
There is a risk of late, or sometimes non-payment of bills, which can be greater when conducting business internationally. Getting paid from overseas is as much about an assessment of risk as it is about setting acceptable payment terms and methods. Insurance to protect you is also worth considering.
Before entering into any agreements with new customers who are requesting any form of trade credit you should do full due diligence on them and run a credit check. If they’re credit worthy then move on to considering the currency issues. For example in some countries there are restrictions on access to foreign currency and so some customers may find it problematic to get hold of enough of your currency to be able to pay.
Any business, which sells on credit, can use factoring to free up cash flow, and this may be something to consider particularly when trading in overseas markets. Factoring companies specialise in collecting money and will pay you a percentage of the invoice value upfront, plus any balance, minus commission, once they have received payment. Export Factors specialises in this for the collection of money from overseas.
Some useful resources can be found below;
- Export price quotation worksheet (SBDC)
- Export price quotation worksheet (USDC)
- Sample quotation
- Sample Pro Forma Invoice 1
- Sample Pro Forma Invoice 2
- Sample Pro Forma Invoice for Agriculture (USDA)
- Sample responses to inquiries from agents and distributors (SBDC)
- Sample sales and purchase order contract
Note: Original text from the Exporter Toolkit from the Caribbean Export Development Agency (CEDA). The content has been updated for the Bahamas Trade Information Portal with permission of CEDA.