Advance Payment %age

Discussion in 'Growing and Managing a Business' started by Aun, Jul 23, 2011.

  1. Aun

    Aun
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    Good day readers,

    I believe an international sale will not make you feel that you are taking a big risk for your finances invested and for your reputation IF you know how much payment you should take in an advance from your buyer for securing your investment and reputation. I believe this is the biggest secret of calculation in international business.


    Are there any set rules for setting an advance payment percentage for buyers on which you initiate the production process, ship your product to your buyer and get rest of your amount from your buyer after presenting bill of lading (B/L).

    How much cost an advance payment should cover?
    What factor(s) one should calculate before setting an advance percentage for buyer?
    What should be an ideal advance percentage where you feel secure for both; your investment and reputation?
    On which percentage you should have no doubt to say NO to your buyer and ask for a raise in an advance payment?
     
  2. Fergal

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    Aun there are no hard and fast rules as to the level of advance payment you should demand from clients, every industry is different and every company will have their own terms and conditions. If you are selling ask yourself if it would be possible for you to get 100% payment in advance, many businesses do in fact get paid 100% before they will send the product. For example, if you purchase something from Amazon or eBay you will have to pay 100% of the selling price before it is shipped to you.

    If you can't get 100% in advance, get as much as possible, obviously the higher the percentage you get the lower will be the risk for your company. What type of products or services will you be selling?
     
  3. Aun

    Aun
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    Fergal I am exporting Kitchen towels/dusters, a selected range of work gloves( Cotton and Leather made) and soon in near time I will add cotton yarn in my products too. I am exporting these.

    Kitchen Towels/dusters samples have been sent to London in this concern on last Friday. I have chosen the textile industry products for my export business.

    The main reason to ask this question is the thought that when you are selling to the world and you have finances to take one bulk order but what would you do when at the same time more than one mmm lets say two or three importers want to buy from you and you have left no finances to initiate the production process for those orders because you have already invested your finances in form of advance payments to your manufacturer/Freight forwarder for your first order. At this point the advance payment from your importer makes you safe in a way that you take the other three order at the same time with some advance payments from them (importer) enough to make payments to your manufacturer to produce the products for other orders too and your freight forwarder for advance booking.

    Here I really want to know that when exporting companies ask for an advance payment from their importers they means the percentage portion of that an advance payment must include unit price + packing+ insurance charges(if agreed) + shipping charges collectively or only the unit price?
     
  4. Fergal

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    Aun, the issue you speak about is a common one experienced by growing and expanding businesses and it is sometimes referred to as over-trading. One way of financing the additional costs associated with expanding your sales is through getting advance payments from your customers in the way that you describe. Perhaps it might also be practical for you to look at other options such as bank finance? Do you think that might work for you?
     
  5. Aun

    Aun
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    As I have been in banking industry earlier and specifically I was Credit analyst. I don't want to go for bank finance not on this stage.
     
  6. Fergal

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    Why would that stop you from seeking bank finance for your business?
     
  7. Aun

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    They need property documents and this is their basic requirement in providing finances to export business and I don't own a property well with this they also need a good bank statement from last one to three year and you know that I have just started this business. I told you Fergal I been in this banking business I know the details here and other than export finance scheme bank will hit you a higher markup. Export finance scheme has lower markup rate but believe me it looks lower but if you go in the details you will find a very minor difference b/w this and any other.
     

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