It is imperative that exporters be especially careful when choosing a method to receive payments, as this in itself can be a form of risk mitigation. Given the large number of cases of non-payment for goods already shipped or shipped, exporters should understand the legal resources available in such situations.
Recourse available to exporters
In the event of non-payment for goods already shipped, experts say there are some key Indian organizations an exporter can contact. Purushottam Anand, Assistant Professor of Law and Associate Dean (Clinical Legal Education), IFIM Law School, says the key government organization that deals with foreign trade issues is the General Directorate of Foreign Trade (DGFT). To settle disputes amicably, in 2019 the DGFT set up an online service module called Quality Complaints and Trade Disputes (QCTD) to which importers and exporters can address their complaints.
On a practical note, Arjun Ranga, Managing Director of Cycle Pure Agarbathi, says that with DGFT, an exporter must file a complaint with the Federation of Indian Export Organizations (FIEO). FIEO and DGFT will blacklist stray importers after investigation. Exporters can also file a complaint with the Indian Embassy in the importing country. This will force the trade wing of the importing country to pressure the corresponding trade organizations to take action against importers, says Ranga, who exports to more than 65 countries.
Usually, trade issues are covered by international trade dispute settlement mechanisms if the parties agreed to arbitrate through this channel in the sales contract. But, for small businesses, international commercial arbitration can be disproportionately expensive, Anand says.
According to Ranga, international organizations such as MAH International Corporation in Switzerland are also useful and effective if exporters have the right documentation and communication support and follow-up. However, this process is costly because these debt collection agencies follow a negotiation approach, rather than the legal process, in order to preserve the relationship between the disputing parties. In most cases, importers make payments to avoid damaging their reputation.
However, the process is likely to take a long time for a new exporter. Exporters have to go through a long process even though they have validated each level of documentation with various organizations. According to Ranga, it is not easy for exporters. He therefore suggests insurance coverage approved by the Export Credit Guarantee Corporation (ECGC) as an ideal option for a novice exporter who has shipped the goods ahead of payments – i.e. shipping without prepayments / payments not covered by the conditions of documents against payment. .
Is the process simple or cumbersome for a novice exporter?
The process provided by the DGFT is quite transparent. Exporters can file their complaints on the DGFT website, and under the Services tab, go to the Quality complaints and commercial disputes section and download all the supporting documents. “The complaint is then forwarded to the respective Indian Mission Abroad (IMA) in the country of action,” explains Anand of IFIM. The website also provides a user manual and a virtual chat service, in addition to a toll-free number dedicated to aggrieved exporters. This is a free service and no administrative fees are required to file a complaint under the QCTD module.
Common problems while disputing non-payment and their solutions
Exporters make common mistakes when they dispute payment defaults for goods already shipped. Many exporters fail to keep or provide sufficient supporting documents while contesting non-payments, explains IFIM’s faculty. Even in cases involving payments via letter of credit or escrow services, money can only be released upon presentation of shipping documents or other required documents. In the DGFT portal, complaints filed without providing sufficient details or documents may be marked as “deficient”, but another possibility is offered to modify and resubmit the complaint.
So prevention is better than cure, according to Anand of IFIM. This is especially true in international sales transactions. Exporters should choose the payment method with the utmost caution and should also consider payment instruments, including letters of credit and escrow services, which involve a lower risk of default. Other mitigation measures that can be adopted include cargo insurance and the engagement of a trustworthy service provider (such as banks, freight forwarders, shipping lines and intermodal transport providers), explains Anand. “It’s also a smart decision to always start processing prepayment terms until you get to know the buyer. Make sure you are selling quality products as this will be the buyer’s main excuse for non-payment. One could consider using international certification agencies such as SGS or Intertek to have products certified before export, Ranga says. Exporters must also strictly follow all documentation procedures and also take ECGC coverage.
Experts say it is imperative that exporters are fully aware of the company they are dealing with. Vikas Singh Chauhan, director of the HomeTextile Exporters Welfare Association (HEWA), asks traders to do extensive homework before sending shipments to overseas buyers. Exporters should be familiar with the policies of the destination countries. “Recently, members exporting to Sri Lanka said that overseas remittances are limited in that country. Earlier we also saw the problem of payment due to the currency restrictions in Nigeria and Algeria. The worst part is that in case of non-payment in some countries, you cannot bring your goods back due to the complex customs policies there, so the exporters lose almost all the money, ”he adds. he.
Chauhan points out that in the case of textiles, exporters sometimes have the option of reselling the goods to others if the original buyer does not pay. But in the case of agri-food products, exporters can lose their entire shipment if they don’t take precautions like ECGC insurance. He therefore suggests that exporters do not give credit to buyers in the first deal. Even opting for down payment terms on the first two transactions can be very risky. “Bank guarantees or letters of credit are the best option. Otherwise, get an advance of 20 to 30% of the value of the transaction and get the rest on the copy of the bill of lading or by bank transfer after checking beforehand and taking insurance cover on the customer, ”he adds. .