I need your help with a concern and a question. I am in the USA and
will be improting merchadise to sell at my local flea market.
  
My concern is that the overseas suppliers I am in contact with would
like to be paid through Western Union or a bank wire transfer. Since I
really don't know the suppliers other than sending emails and instant
messages back and forth, Western Union and my bank have suggested that
I not use Western Union or a bank wire transfer because as soon as I
send the money, if the supplier does not send the merchandise, there
is no recourse or any way to get my money back. I know in any
business, there has to be a certain level of trust, but it seems that
by paying that way, I am taking all the risk.
 
My question is: Are these the two main ways that importers pay, or do
they use another form of payment that gives them some level of
protection.
 
I will be buying over $10,000 a month in merchandise and to have that
amount of money floating out there through Western Union or a Bank
wire transfer seems very risky. On the other hand, I do know that in
any business, there is risk and maybe this is just one of the risks I
have to deal with.
 
Any insight you can share with me would be greatly appreciated.
 
I will also be discussing this with the Dept. of Commerce to get their
input, because I do know there are other forms of payment such as a
bank "Letter of Credit"
 
Dennis Burton

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Clarification of Question by denny1965-ga on 03 Sep 2005 06:33 PDT

The amount of each purchase would be around $1,000, maybe $2,000 on
occasion and $6,000 twicw a year. For the most part part the items
would be sent by way ox carrier sauch as UPS,DHL or FEDX. Would using
a bank letter of credit be cost effective on a $1,000 purchase by way
of UPS, DHL or FEDX?

Whatever you do, do not pay through Western Union or bank wire
transfer. What you have been advised is correct - this does not leave
you any recourse if you get cheated.

The ideal way to transact business with an unknown buyer is to issue
what is known as a Letter of Credit (LC) through a bank. This is a
complex instruction that tells the bank what terms on which to release
the money. Essentially, this means that the bank holds your money in
escrow, and releases it to the seller when the shipment arrives at
your location.

Obviously, it's a little more complex than that. The bank has to know
how to decide if the shipment is correct, and that is not easy. I
would suggest that you talk to your bank and possibly your lawyer
about this before going ahead.

An useful link: http://www.cfg-lawfirm.com/articles/moses1.html

Regards,

O

If I am making a $1,000 purchase overseas, would a bank letter of
credit be cost effective? I would think that would cost substntially
more than the wire transfer fee. I could be wrong, but I would think I
bank would not even do an LC for that small of a transaction.

I am an exporter, I use wire all the time, it is quick and cost less than a L/C
I wire a downpayment and final payment on sight of the Bill of Laden
or Dock Reciept, I use a L/C for large quantity shippments mostly, to
keep track of everything. If the supplier does not execpt a down
payment, they do not have money to finace there part of the
transaction, get another supplier.

I love wire transfers. I have to keep a refence book for a L/C and my
bank fees are about $400 to $700, for around $80,000 in product. A L/C
is very secure and easy if you know what you are doing, but time
consuming to learn with out experience. And then there are those
amendments and time calling the bank asking if they are working on
fixing the amendments ect...

Talk to your supplier, Talk to their shipping agent, Talk to your
customs broker, get refences from the supplier ask them their opion of
the supplier,

You will get a better picture of all the costs involved, terms of
payment and if your supplier will supply your product or not.

Just don't send full payment upfont. 50/50 is ok, Believe it or not I
have people wire 10,000, 40,000 and up for a downpayment, It would be
easy to just take it and run, but there is more money to be made with
years of return orders than just one down payment, And most companies
who put the time into building their export business understand this,
and really want more orders from you, and not just your money. There
are unexpected expense and delays, try to find out all before you send
any money.
 
Number one exporter goal is to be a reliable supplier, and then the
profit follows. Just take your time and check out everything, better
to be safe than broke,