Exporting to the United States – A Team Canada Inc Publication

5.5 Payment methods

Canadian businesses exporting to the United States should be prepared to give credit terms to their buyers. The most common payment method is by open account, with a 30- to 90-day credit period. "Open account" means that you agree to ship the goods, or provide the services, before getting paid. This is simple and involves less paperwork than other payment methods, but it also has one huge risk – you're fully exposed to your buyer's credit risks; if the buyer refuses to pay, for whatever reason, you may not get your money.

You can insure yourself against such risks. Another option is to seek more favourable payment terms from your customer, at least until you develop a relationship. These include:

Cash in advance

Your buyer pays you in full or provides a deposit before you ship the goods or provide the services. This is obviously the best option for you. However, U.S. buyers may refuse to purchase from you if you don't sell on open account.

Documentary collections

To use a collection, you entrust the collection of payment to a remitting bank, usually your own. The remitting bank sends documents to a collecting bank (usually the importer's bank), along with instructions for payment. The collecting bank accepts your buyer's payment and sends it to the remitting bank, which then pays you. Collections are less complicated but also less secure than L/Cs, because you're exposed to your buyer's credit risks until you receive payment. However, from your point of view, they're preferable to the open-account approach.