It is imperative that exporters be especially careful when selecting a method to receive payments as this in itself can be a form of risk mitigation. Considering the vast number of cases involving non-payment against goods already shipped or dispatched, exporters must understand the available legal resources in such situations.
Recourse available to exporters
In the case of non-payment against goods already shipped, experts say there are some key Indian organisations an exporter can approach. Purushottam Anand, Assistant Professor of Law and Associate Dean (Clinical Legal Education), IFIM Law School, says the key government organisation that addresses issues surrounding foreign trade is the Directorate-General of Foreign Trade (DGFT). To settle disputes amicably, the DGFT introduced an online service module called Quality Complaints and Trade Disputes (QCTD) in 2019 that both importers and exporters can go to with their grievances.
On a practical note, Arjun Ranga, Managing Director of Cycle Pure Agarbathies, says that along with the DGFT, an exporter should register a complaint with the Federation of Indian Export Organisations (FIEO). The FIEO and the DGFT will blacklist errant importers after an inquiry. Exporters can also register a complaint with the Indian embassy in the importers’ country. This will make the trade wing in the importers’ country put pressure on the corresponding trade organisations to take action against the importers, says Ranga, who exports to more than 65 countries.
Usually, trade concerns are covered by the International Commercial Dispute Resolution mechanisms if the parties had agreed to arbitration through this route in the sale agreement. But, for small businesses, international commercial arbitration can be excessively expensive, says Anand.
According to Ranga, international organisations such as M.A.H International Corporation in Switzerland are also useful and effective if the exporters have the right documentation and the supporting and follow-up communication. However, this process is expensive as these debt-collection organisations follow a negotiation approach, instead of the legal process, so as to preserve the relationship between the disputing parties. In most cases, the importers make the payments to avoid damaging their reputation.
However, the process is likely to be time-consuming for a new exporter. Exporters have to follow a long procedure even if they have cleared each level of documentation with various organisations. According to Ranga, it is not easy on the exporters. He, therefore, suggests an Export Credit Guarantee Corporation (ECGC)-approved insurance coverage as an ideal option for a novice exporter who has shipped the goods before payments — i.e., shipping without advance payments/payments not covered under documents-against-payment conditions.
Is the process seamless or cumbersome for a novice exporter?
The process provided by the DGFT is quite seamless. Exporters can file their complaints on the DGFT website, and under the Services tab, go to the Quality Complaints and Trade Disputes section and upload all the supporting documents. “The complaint is then forwarded to the respective Indian Mission Abroad (IMA) of the country of action,” says Anand of IFIM. The website also provides a user manual and virtual chat service, apart from a dedicated toll-free number for aggrieved exporters. This is a free service and no application fee is required for filing a complaint under the QCTD module.
Common issues while challenging non-payment and their solutions
There are some common mistakes that exporters make while challenging payment defaults against goods already shipped. Many exporters fail to maintain or provide sufficient supporting documents while challenging non-payments, says the IFIM faculty. Even in cases involving payments through a letter of credit or escrow services, the money can only be released on producing shipping or other required documents. In the DGFT portal, complaints raised without providing sufficient details or documents may be marked as “deficient”, but further opportunity is provided to modify and re-submit the complaint.
Thus, prevention is better than cure, says IFIM’s Anand. This holds especially true in international sale transactions. Exporters need to select the payment method with utmost prudence and should also consider payment instruments, including letters of credit and escrow services, that involve a lower risk of default. Other mitigation measures that can be adopted include insuring goods and engaging a trustworthy service provider (such as banks, freight forwarders, shipping lines and intermodal transport providers), says Anand. “It is also a smart decision to always begin dealing with the terms of advance payment until one becomes familiar with the buyer. Ensure that you sell quality products as that will be a buyer’s key excuse for non-payment. One might want to explore using international certification agencies such as SGS or Intertek to get the products certified prior to export, says Ranga. Exporters must also strictly follow all the documentation procedures and also take the ECGC coverage.
Experts say it is imperative that exporters are fully aware of the company they are dealing with. Vikas Singh Chauhan, Director, HomeTextile Exporters Welfare Association (HEWA), asks traders to conduct thorough homework before dispatching any consignments to foreign buyers. Exporters must be well versed with the policies in the destination countries. “Recently, members exporting to Sri Lanka said outward remittances are restricted in that country. Earlier, we have seen the issue of payment due to currency restrictions in Nigeria and Algeria, too. The worst part is that in case of non-payment in some countries, you can’t bring back your goods due to the complex custom policies there, so exporters lose almost the entire money,” he adds.
Chauhan points out that in the case of textiles, exporters sometimes have options to resell the goods to others if the original buyer fails to pay. But in the case of agro products, exporters can lose their whole consignment if they do not take precautions like ECGC insurance. He, therefore, suggests that exporters not give credit to buyers in the first deal. Even going for down-payment terms on the first couple of deals can be very risky. “Bank guarantees or letters of credit are the best option. Otherwise, secure an advance of 20-30% of the deal value and get the rest on the bill of lading copy or via bank-to-bank transfer after due diligence and taking an insurance cover on the client,” he adds.