When you buy from a supplier abroad, the payment is usually the biggest single risk. Pay too early and you may never see the goods. Pay too late and the supplier may refuse to ship. The method you choose splits that risk between you and the supplier, and has a cost. Understanding the main options helps you pick one that suits the size of the order and your trust in the supplier. Banks and rules differ, so ask your bank about current procedures and charges.

Open account and bank transfer

The most common method for smaller orders is a bank transfer, often called a telegraphic transfer. You send money, in part or in full, to the supplier's account. It is fast and cheap but offers little protection: once the money is sent, it is hard to recover if the goods do not arrive. Transfers can be made in stages, such as a deposit on order and the balance before shipping or against documents. Always verify the supplier's bank details through a trusted channel. Paying overseas suppliers safely: forex fees and fraud covers the costs and scams.

Letters of credit

A letter of credit (LC) is a bank's promise to pay the supplier once they present documents that prove they shipped the goods as agreed. It protects both sides: the supplier knows the bank will pay if the documents are in order, and you know the bank will not pay until they are. LCs suit larger or first-time transactions between parties who do not yet trust each other. The cost is bank fees and the work of preparing exact documents; small discrepancies can delay payment, so check every document against the terms.

Documentary collections

In a documentary collection, the supplier ships the goods and sends the documents through banks. You obtain the documents, which you need to clear the goods, by paying or accepting a bill of exchange. It is cheaper than an LC and gives some protection, but the bank does not guarantee payment. It suits parties with an established relationship.

Deposits and staged payments

Many suppliers require a deposit, commonly a percentage of the order, with the balance on completion or shipment. Negotiate the deposit as low as you can and tie the balance to something verifiable, such as an inspection report or shipping documents. Negotiating with overseas suppliers offers tips on terms.

Escrow and payment platforms

Some online marketplaces and payment services hold your money until you confirm that goods have arrived. They can reduce risk for small orders, but check their fees, limits and dispute rules. Read the terms before relying on them, and keep your own evidence.

Foreign exchange

Whatever the method, you must buy foreign currency. Rates differ between banks and providers, and fees apply. Compare the total cost in shillings, not just the advertised rate. If the payment is due weeks after you order, the rate may change; consider ways to manage the risk in managing currency risk when you import or export. Track the actual rate used for each payment; the foreign currency sales and exchange difference tracker records rates and differences.

Match the method to the risk

For a small, first order from an unknown supplier, an escrow service or staged payments with inspection offer protection. For a large order, an LC or a documentary collection may be worth the fees. For a long-standing supplier with a good record, a bank transfer on agreed terms may be fine. Compare the cost of protection with the value at risk.

Paperwork and tax

Keep proof of every payment: bank advices, exchange rates and invoices. They support your costs, your customs value and your VAT claim; see customs valuation explained and import VAT: how to claim it back. Payments abroad may require supporting documents for the bank; prepare the invoice and proforma in advance. Include bank charges in your costing with the landed cost calculator.

Check the rules and the supplier

Banks follow rules on documentation and anti-money-laundering, so be ready to explain the purpose of each payment. Vet the supplier before you pay; how to vet an overseas supplier before you pay lists the checks. Choosing the right payment method is about balance: enough protection for the risk, at a cost you can justify.