Even after the exporter has decided what credit rating to give the prospective customer and what estimate to place on the exchange situation, he has still to take account of a number of general factors before finally settling on the terms on which he will ship:

1. What are the customary terms in the market in question?

2. Is the importer asking for particular treatment as a condition of the sale?

3. Does the product in question require certain sales terms which cannot be safely departed from?

4. What terms is the exporter able to offer, in view of his own working capital?

5. What terms are the exporter's competitors offering in the market in question?

To these queries we shall attempt no immediate answer. Rather, consider now the terms on which American exporters and importers are selling and buying and how they obtain credit to carry the goods until payment is received from the ultimate consumer.

Lack of Uniformity in Terms of Sale

It would be helpful if the story could be simply told. For instance, it seems logical that the American exporter would prefer to draw a sight draft under a dollar letter of credit provided by his foreign customer, thus obtaining cash as soon as the documents are presented to the bank, or a time draft under a dollar letter of credit which could be discounted either with the accepting bank or in the open market. Moreover, we might with equal logic expect American importers to provide their foreign shippers with letters of credit calling for sight or time drafts with documents delivered respectively against payment or acceptance of the draft.

Unfortunately the matter is vastly more complicated. Exporters customarily use various terms of sale under various circumstances. This is so even when they are shipping to the same market at the same time. American importers show a somewhat greater tendency to concentrate on a uniform method of purchase, but even in this case not over two-fifths of those replying to the query reported the same preference.In general, therefore, we may expect differences rather than uniformity in terms of sale used in foreign trade not only between dealers in different products, but between dealers in the same product and between various markets. An exporter will arrange the terms on which he sells to suit conditions which change with product, market, and the passage of time. The following quotation from a questionnaire reply made by the export manager of a well-known American manufacturing company serves well to introduce the subsequent pages of discussion:

To goods, in markets largely free from exchange restrictions, our terms vary, depending on the nature of the account. When we receive an order of any size, we begin an investigation and, if information received is satisfactory, terms are arranged from 60 to 120 days date, depending on the country to which merchandise is to be shipped.

In markets where exchange restrictions exist, there is little we can do in adjusting terms. In countries where there are exchange restrictions, we have experienced delays in obtaining our money. However, the delays are not so great that it is necessary for us to alter our terms. . . . At the present time we have several outstanding drafts where exchange restrictions are in effect, and the customers have paid the bank [in local currency]. . . . The delay in remitting to us is no fault of the customer's. . . .

To doubtful risks, in markets largely free from exchange restrictions, terms vary, as mentioned under "a" to good risks. When we receive an order and we are informed that customer is a poor moral and financial risk, we naturally hold up shipment until we receive cash in advance.

In markets where exchange restrictions exist and the accounts are doubtful, we prefer to restrict shipments to a strictly S/D basis. It is often useless to ask for one-half cash in advance due to the fact that customer is not able to have the advance released out of the country. However, arrangements can be made whereby the [foreign] bank can hold this amount and when the balance which is being settled by draft is paid, the full amount is forwarded to us.