Selling across a border introduces a problem that rarely troubles a domestic sale: the distance between you and your buyer makes it far harder to be sure you will actually be paid. If a customer in your own city refuses to settle an invoice, you know the courts, the collection agencies, and the reputational levers available to you. When the buyer sits in another country, under a different legal system, possibly in a language you do not read, those levers weaken or vanish. Chasing an unpaid invoice across borders is slow, expensive, and often futile. For that reason, deciding how you will get paid is not a back-office detail to settle after the deal; it is part of the deal itself, and it deserves attention before you ship a single unit.
The spectrum of payment terms and who carries the risk
Every method of international payment sits somewhere on a spectrum defined by a single question: who is exposed while the transaction is incomplete. At one extreme is cash in advance, where the buyer pays before you produce or ship. This is the safest option for the seller and the riskiest for the buyer, who must part with money trusting that goods will arrive as promised. At the opposite extreme is open account, where you ship the goods and invoice the buyer to pay later, perhaps thirty or sixty days after delivery. Open account is comfortable for the buyer and exposes the seller almost entirely, because you have surrendered your goods with nothing but a promise in return. Between these poles lie the instruments that exist precisely to share the risk more evenly, chiefly documentary collections and letters of credit.
Why open account is common and dangerous
It is worth understanding why open account terms are so widespread despite the risk, because you will be pressured to offer them. In competitive markets, generous credit terms are a selling point, and established buyers expect them the way domestic customers do. For a trusted, long-standing customer in a stable country, open account is often perfectly reasonable and keeps the relationship efficient. The danger is extending the same trust to a new buyer you have never dealt with, in a jurisdiction where enforcement is weak. The sensible path is graduated: begin new relationships with secure terms and relax them as the customer proves reliable, rather than starting from a position of maximum exposure and hoping to tighten later, which almost never happens without friction.
The letter of credit and how it shifts the ground
The letter of credit, often abbreviated to L/C, is the instrument most closely associated with international trade precisely because it addresses the core problem of mutual distrust between strangers. Its mechanism is elegant. Instead of relying on the buyer’s promise, you rely on the promise of the buyer’s bank. The buyer arranges for their bank to issue a letter of credit in your favor, undertaking to pay you a defined sum provided you present a specified set of documents proving you shipped the correct goods. You are no longer trusting the buyer; you are trusting a bank, and often a second confirming bank in your own country adds its guarantee on top. This substitution of a bank’s creditworthiness for a customer’s is what makes large deals between unfamiliar parties possible at all.
Living with the discipline of documents
The power of a letter of credit comes with a demanding condition that trips up many first-time exporters: banks deal in documents, not goods, and they pay only against documents that comply exactly with the terms of the credit. A shipment can be perfect and on time, yet payment can be refused because a document describes the goods with different wording than the credit specified, or a date has slipped, or a required certificate is missing. These are called discrepancies, and they are astonishingly common on first presentation. The lesson is to treat the letter of credit as a checklist the moment it arrives, verifying that every requirement is one you can actually meet before the goods move. If the credit demands a document you cannot obtain or a deadline you cannot hit, you negotiate an amendment then, not after you have shipped.
Documentary collections as a middle path
Between the heavy protection of a letter of credit and the exposure of open account sits the documentary collection, a lighter and cheaper arrangement. Here your bank forwards the shipping documents to the buyer’s bank with instructions to release them only against payment or against the buyer’s formal acceptance of a commitment to pay. Because the buyer cannot claim the goods from the carrier without the documents, control of the documents becomes leverage. A collection is less secure than a letter of credit, since no bank guarantees payment, but it is far less costly and administratively lighter. It suits relationships with some established trust and reasonably reliable jurisdictions, where the main aim is to keep the buyer from taking possession of goods without settling.
Insurance, guarantees, and spreading the risk
Beyond the payment method itself, other tools reduce the sting of non-payment. Trade credit insurance covers you against a buyer defaulting, whether through insolvency or protracted default, and is especially valuable when you sell on open account to many customers and cannot practically secure each one. Many governments run export credit agencies that provide similar cover or guarantees to encourage exporters into riskier markets. For a growing business, factoring or forfaiting can convert foreign receivables into immediate cash by selling them, sometimes without recourse, transferring the collection risk to a specialist. None of these is free, but each converts an unpredictable catastrophic loss into a manageable known cost, which is often exactly the trade a prudent exporter wants.
Matching the method to the situation
There is no single correct way to get paid, only a method appropriate to the specific buyer, country, deal size, and depth of relationship. A first order to an unknown buyer in a difficult jurisdiction may justify a confirmed letter of credit despite its cost and paperwork. A repeat order from a decade-old customer in a stable market may sensibly move on open account with credit insurance behind it. The discipline that protects you is not choosing the most secure instrument every time, which would make you uncompetitive, but consciously matching the level of protection to the level of risk in front of you, and never letting the excitement of a large order push that decision to the very end, where it does the least good.