RIP Wayne Guest

[pj123]

My wife has a Thai company and she is planning to import manufactured products from the USA.

We are unsure of what terms of payment she should give in her quotes and invoices to her Thai customers.

The company will pay its suppliers in the US with a 50% advanced payment with the balance by LC. The Thai company has no credit with the US suppliers as it is a new customer.

The Thai company needs its Thai customers to pay in advance before the goods are shipped from the US.

They intend to ask the Thai customer to pay 50% in advance for the products to be manufactured to order. Then the balance prior to shipment from the US.

My wife is considering including this wording in her Quotes and Invoices:

Payment: 50% in advance, balance to be paid by either:

1. Bank guarantee acceptable by our bank on the basis of export invoice and packing list OR

2. Prepayment before shipment on the basis of export invoice.

Advice appreciated on the terms and the wording above. Also, whether they can also use an LC with their Thai customers. Thanks!

[padeakin]

If I were your potential customer, I would be confused by that wording.

You are not asking for 50% in advance, you are asking for 100% in advance, and I assume the price is agreed when you send the invoice, in which case they are not interested in your export invoice, or are you saying that the price could change, depending on the invoice you get from your supplier?

[pj123]

If I were your potential customer, I would be confused by that wording.

You are not asking for 50% in advance, you are asking for 100% in advance, and I assume the price is agreed when you send the invoice, in which case they are not interested in your export invoice, or are you saying that the price could change, depending on the invoice you get from your supplier?

Thank you. You are correct, the Thai company is asking for 100% in advance from its Thai customer and the price is agreed when the invoice is sent. The price will not change.

The advance payment is in two installments: (1) 50% prior to production and (2) 50% prior to shipping.

Is the reference to the bank guarantee confusing things unnecessarily?

Edited February 1, 2013 by pj123

[Gulfsailor]

Without knowing type of goods and cost, difficult to say much about it. But in most cases a customer is hard to find who is willing to deposit 100%, more so knowing that the products will be imported. What happens when goods are lost in transit? Manufacturer goes bust? Goods are delayed? More cost for import duties than expected, etc etc. Will ypu pay back fully to consumer? Consumer buys locally for certain reasons. Most important are stock availability and payment upon receipt of goods. If I as customer would be confronted with this deal, I would opt to import directly myself, as that would likely be a lot cheaper, and wouldn't carry much more risk than what you seem to be offering. As a minimum I would demand a sales contract stating all that could possibly go wrong, and regardless, loss of goods lies solely by supplier, not me.

Ps. L/C needs something to be handed over, in return money gets released. Normally an airwaybill or bill of lading. Neither would exist when shipping domestically onwards to your customer. And a bank wouldn't risk it with an easily forged shipping manifest by a local trucking company. You are aware of the costs associated with a L/C?

[pj123]

Without knowing type of goods and cost, difficult to say much about it. But in most cases a customer is hard to find who is willing to deposit 100%, more so knowing that the products will be imported. What happens when goods are lost in transit? Manufacturer goes bust? Goods are delayed? More cost for import duties than expected, etc etc. Will ypu pay back fully to consumer? Consumer buys locally for certain reasons. Most important are stock availability and payment upon receipt of goods. If I as customer would be confronted with this deal, I would opt to import directly myself, as that would likely be a lot cheaper, and wouldn't carry much more risk than what you seem to be offering. As a minimum I would demand a sales contract stating all that could possibly go wrong, and regardless, loss of goods lies solely by supplier, not me.

Ps. L/C needs something to be handed over, in return money gets released. Normally an airwaybill or bill of lading. Neither would exist when shipping domestically onwards to your customer. And a bank wouldn't risk it with an easily forged shipping manifest by a local trucking company. You are aware of the costs associated with a L/C?

Noted. I think we may have to consider waiting for the final payment until delivery of goods to the customer.

[HullyGully]

You can have whatever you want T&C's in your Sales Contract.

The question is:- Will the buyer accept them.

As someone pointed out, you have not stated what you are supplying, also a typical Sales Contract value

A few points:- About STAGE PAYMENTS

Normal to have a percentage payment upon place of order

Another payment upon purchase of parts or the progression of the order

Another progress payment

Another payment when goods are RFS (ready for shipment)

Balance upon receipt

Make up your own percentages

Who pays for the LC?

RFS paid against sight of BOL or AWB

You need to write up your Standrard T&C's

You also need a tight Contract with your Supplier, also you MUST include TITLE to GOODS, this means if your Supplier goes bust you own the goods not the Creditors

[pj123]

You can have whatever you want T&C's in your Sales Contract.

The question is:- Will the buyer accept them.

As someone pointed out, you have not stated what you are supplying, also a typical Sales Contract value

A few points:- About STAGE PAYMENTS

Normal to have a percentage payment upon place of order

Another payment upon purchase of parts or the progression of the order

Another progress payment

Another payment when goods are RFS (ready for shipment)

Balance upon receipt

Make up your own percentages

Who pays for the LC?

RFS paid against sight of BOL or AWB

You need to write up your Standrard T&C's

You also need a tight Contract with your Supplier, also you MUST include TITLE to GOODS, this means if your Supplier goes bust you own the goods not the Creditors

Thank you. Staged payments as you describe would be a good option. Advice about Title to Goods also noted. By the way the goods are construction materials that are manufactured to order.

[p_brownstone]

You can have whatever you want T&C's in your Sales Contract.

The question is:- Will the buyer accept them.

As someone pointed out, you have not stated what you are supplying, also a typical Sales Contract value

A few points:- About STAGE PAYMENTS

Normal to have a percentage payment upon place of order

Another payment upon purchase of parts or the progression of the order

Another progress payment

Another payment when goods are RFS (ready for shipment)

Balance upon receipt

Make up your own percentages

Who pays for the LC?

RFS paid against sight of BOL or AWB

You need to write up your Standrard T&C's

You also need a tight Contract with your Supplier, also you MUST include TITLE to GOODS, this means if your Supplier goes bust you own the goods not the Creditors

Thank you. Staged payments as you describe would be a good option. Advice about Title to Goods also noted. By the way the goods are construction materials that are manufactured to order.

I don't think many Customers would want the hassle of 4 or 5 staged payments - 2 would be OK.

If the goods are manufactured to Order you should get a payment with the Order from your Customer that covers the Cost of the goods - so if he later changes his mind and, because they are specific to the original Customers requirements, the goods cannot easily be sold to another Customer then you are not out of pocket. You should make it clear that the Deposit is forfeit if he does in fact change his mind.

Balance should be paid on Delivery of the goods.

Patrick

[BrianCR]

Without knowing type of goods and cost, difficult to say much about it. But in most cases a customer is hard to find who is willing to deposit 100%, more so knowing that the products will be imported. What happens when goods are lost in transit? Manufacturer goes bust? Goods are delayed? More cost for import duties than expected, etc etc. Will ypu pay back fully to consumer? Consumer buys locally for certain reasons. Most important are stock availability and payment upon receipt of goods. If I as customer would be confronted with this deal, I would opt to import directly myself, as that would likely be a lot cheaper, and wouldn't carry much more risk than what you seem to be offering. As a minimum I would demand a sales contract stating all that could possibly go wrong, and regardless, loss of goods lies solely by supplier, not me.

Ps. L/C needs something to be handed over, in return money gets released. Normally an airwaybill or bill of lading. Neither would exist when shipping domestically onwards to your customer. And a bank wouldn't risk it with an easily forged shipping manifest by a local trucking company. You are aware of the costs associated with a L/C?

Hey Gulf - Every import company in the World pays in advance for the goods ordered either by LC (letter of Credit) or TT (telegraphic transfer) Goods are usually supplied FOB (Free on Board) and the purchasers agent will arrange freight and (as for going missing) insurance. Any one who imports before finding out the duty payable (plus VAT) should not be importing in the first place!

[Gulfsailor]

Without knowing type of goods and cost, difficult to say much about it. But in most cases a customer is hard to find who is willing to deposit 100%, more so knowing that the products will be imported. What happens when goods are lost in transit? Manufacturer goes bust? Goods are delayed? More cost for import duties than expected, etc etc. Will ypu pay back fully to consumer? Consumer buys locally for certain reasons. Most important are stock availability and payment upon receipt of goods. If I as customer would be confronted with this deal, I would opt to import directly myself, as that would likely be a lot cheaper, and wouldn't carry much more risk than what you seem to be offering. As a minimum I would demand a sales contract stating all that could possibly go wrong, and regardless, loss of goods lies solely by supplier, not me.

Ps. L/C needs something to be handed over, in return money gets released. Normally an airwaybill or bill of lading. Neither would exist when shipping domestically onwards to your customer. And a bank wouldn't risk it with an easily forged shipping manifest by a local trucking company. You are aware of the costs associated with a L/C?

Hey Gulf - Every import company in the World pays in advance for the goods ordered either by LC (letter of Credit) or TT (telegraphic transfer) Goods are usually supplied FOB (Free on Board) and the purchasers agent will arrange freight and (as for going missing) insurance. Any one who imports before finding out the duty payable (plus VAT) should not be importing in the first place!

I think you misunderstood my post. It's point of perspective was that of the domestic end consumer, not the importer. I own two import companies. One in Thailand, one in Europe. In both locations, the end consumer would be off cheaper to import themselves directly. There are several reasons most don't though, most important ones being the waiting time and risks involved. I supply from stock, and payment is due upon delivery, with sometime a small deposit upon ordering if delivery date lies in the future. In the OP's case, he as imporyer is trying to offload the financial risks to his customer, who also loose out already on the lack of available domestic stock. So my question is legit; would the OP also pass on any risks in loss of goods to his customer?

Import duties may not be that fixed in Thailand. I had several quarrels with Thai customs in the past. But I can't expect my customer to carry that burden. All associated risks that come with importing are to be carried by the importer, not the domestic customer. Importers margin should cover the risks.

L/C are actually not that common anymore. The costs involved are excessive. You are passing payment and delivery risk on to a bank or banks, who will want a hefty commission on that risk. Only when dealing with unknown manufacturers or importers in underdeveloped countries you still have loads of L/C being used, but the cost is then also higher, as banks carry more risks. A typical L/C with low risk on a hight goods value (200,000 usd up) may cost only 1%, but for lower value and more risk involved it can go up to as high as 10%! I only used L/C a couple of times, and after the last time vowed to do no more. The time to prepare all the documents was crazy. If the transaction is large, I now personally visit the manufacturer when they say the products are ready to be loaded. I organise transport from my end, and personally inspect the goods before and during loading in the container(s). Only then gets the balance transferred t/t. And an express B/L is issued , so that I have access to the goods, without the need to trust the manufacturer to send me the original B/L.

Anyways. I wish the OP good luck.

[pj123]

There is an alternative to this model. That the Thai company acts as the sole Thai agent for the US supplier. Receiving a commission on sales.

Would the Thai customer then be more willing to accept 100% payment in advance if they are paying the US supplier directly/?

[Gulfsailor]

There is an alternative to this model. That the Thai company acts as the sole Thai agent for the US supplier. Receiving a commission on sales.

Would the Thai customer then be more willing to accept 100% payment in advance if they are paying the US supplier directly/?

Does sound nicer. Except that in that case the customer would also be responsible for the import themselves. In such case there is no advantage at all for the customer, compared to going behind your back. Manufacturer would likely also not be interested, as they would prefer getting a large order at once, than multiple small ones over time. And unless you will spend a fair amount on local marketing with sales increase in Thailand increasing, the manufacturer has no real need for you, and would be wiser to use your agent commission as a discount to its direct ordering customers from Thailand.

My advice; offer the manufacturer a certain minimum order and market exposure, in return you receive exclusivity for Thailand. For the first year this does not have to be very large, if the manufacturer has no footprint yet in Thailand at all. Contract should describe certain provisions under which contract is automatically renewed each year, say 20% increase in sales per annum.

In the first year you deposit the deposit amounts for your minimum annual order in the manufacturer account. Regardless of what you actually will order, your exclusivity in Thailand is secured, because manufacturer has earned its margin.

In stead of charging your customers full price up front, you can go to a bank and secure a loan for acquiring the goods. With sales agreement and deposit from customer, along with your exclusive distributor agreement with the manufacturer, you should get this loan easily. Just add a percent to the price to cover the costs of the loan.

If you see business is doing well, you should start to stock locally, and with that increase your margin. Again, bank will assist you at this stage.

Again, good luck.