Import-Export Manual – Payments and collection of amount due

Manual ABC of Import Export


The payment phase in international sales is a necessary condition for the deal to be successful, and it is important to study two aspects of it, which are interconnected:
• the choice of the methods of payment or of guaranteeing the payment.
• the choice of how to resolve any dispute that may arise, which includes collection of amount due. These aspects must be analysed and negotiated in the pre-contractual stage so as to include them in the contractual agreement.

All this applies both when the Italian business is selling abroad and when it is buying abroad.


The choice of the methods of payment and of the guarantees must be made in the light of considerations about the political risk of the country where the foreign partner is based, as well as on the efficiency and accessibility of the judicial system of the country (the cost of justice and of defence in not very efficient countries).

The most important payment methods include:

• documentary credit or Letter of Credit;
• CAD (Cash Against Documents);
• COD (Cash on Delivery).


This method of payment is regulated by the Uniform Customs and Practice for Documentary Credit UCP 600. It is the safest method of payment in international trade provided that it is irrevocable and confirmed either by an Italian bank or by an EU bank. The letter of credit entitles the beneficiary to have, for a certain amount of time corresponding to the duration of the credit, a person/entity who undertakes to pay the sum of money corresponding to the price of the contract. This subject/entity is more solvent and reliable than the foreign buyer since it is an Italian or an EU bank (therefore the Italian business may undertake lawsuits).


In the case of Cash Against Documents (CAD), once the goods have been shipped, the seller hands over to his bank the documents representing the goods (these documents are indispensable to the buyer to clear goods at customs) so that the buyer collects the documents through a bank in his country, once he has made the payment. The seller’s instructions establish the methods according to which the entrusted bank hands over the documents to the buyer.

There are also other means to guarantee the payment such as personal sureties. If provided in good time, these means may be used should the buyer fail to pay. Below are the standby letter of credit and the clause of reservation of title.


The standby letter of credit is regulated by the publication no. 590 issued by the International Chamber of Commerce (ICC) known as the International Standby Practices ISP98. In a standby letter of credit, the issuing bank undertakes to pay to a sum of money to the beneficiary on behalf of the buyer, should the buyer fail to pay in accordance with the agreed terms and with the conditions set out in the standby letter of credit. In order for the standby letter of credit to be executed, the beneficiary must hand over to the bank a declaration of failure to meet the obligations by the buyer, as well as a copy of the shipping documents.


This tool to protect credit is a contractual provision which enables the seller to retain ownership over the goods sold until such time as the agreed price has been paid entirely. If the full price is not paid, the seller is entitled to the return of the delivered goods of which he has always retained ownership.


The Sace Group is a financial-insurance group which is very active in the field of Export Credit, i.e. credit insurance and investment protection, as well as in the field of financial guarantees, surety bonds and factoring.


What to do if, despite the contractual protections, the debt you are owed remains unpaid? If the parties are based in different countries, this will be more difficult than in domestic transactions. This is because two different countries have two different judicial systems. Before focusing on how to resolve the dispute, it is necessary to address some important preliminary matters:
- Which court should you apply to? The Italian court or that of the country of your foreign partner?
- Which law is applicable to the dispute? The Italian law ]or the law of the country of your business partner?
- How long will the dispute last? What will the cost be for the business?

It is advisable that the business examine these matters before closing the deal and the contract with the foreign partner so as to negotiate the best solution in terms of speed, cost and protection of the business’ own interests, should a dispute arise in the future. If the business fails to do so because of low bargaining power, it will consider this aspect as part of the business risk connected to the transaction.

Within the EU, the path has become smoother thanks to the following regulations:

• Regulation EC 44/2001 that establishes the recognition and enforcement of judgements in civil and commercial matters delivered in all the other states of the EU. The regulation also establishes rules for the determination of the competent court in the case of dispute.
• Regulation EC 805/2004 which creates the “European Enforcement Order”, which enables the enforcement of judgements and acts concerning credits in another state of the EU without any proceedings needed for recognition.
• Regulation EC 1896/2006 which creates a “European order for payment procedure”.


Regulation EC 44/2001 establishes that the parties to an international contract have total freedom in choosing the competent court to settle any disputes, including collection of amount due (Art. 23). The choice must be clearly expressed; this implies that the business must pay attention to the negotiation phase and to the final phase of the contractual deal which often consists of the exchange of several documents (offer, order, order confirmation) during which the parties run the risk of being inaccurate about the terms and conditions which they previously agreed.


With Regulation EC 805/2004 the European Union aims to facilitate the resolution of disputes in civil and commercial matters, and the collection of amount due. The regulation establishes that the following the enforcement titles can be certified as a European Enforcement Order:
• judgements given by a judge of a EU Member State;
• court settlements;
• authentic instruments (the authenticity of which has been established by a public authority of a Member State) on uncontested claims (Art. 3).

To benefit from the European Enforcement Order, if the competent court has not explicitly been expressed, businesses must comply with the rules on jurisdiction laid down by the Regulation EC 44/2001. Please note that, in this respect, the choice of the INCOTERM is an important aspect.


In order to simplify and speed up the collection of amount due in other Member States in civil and commercial matters, the European Union issued the Regulation EC 1896/2006 which regulates the European order for payment.

This Regulation has some innovative aspects aimed at facilitating the collection of amount due, especially for businesses who may organise their activities internally since:
• representation by a lawyer is not required;
• procedure is based on simple pre-printed forms;
• expiry for payment or for opposing the order is shorter than that of the ordinary injunction (30 days instead of 50);
• it is possible to terminate proceedings in advance if the debtor lodges a statement of opposition


Arbitration and conciliation are two methods of resolving commercial disputes which are parts of Alternative Dispute Resolution (ADR). ADR refers to any method of resolving disputes other than by litigation in courts. ADR procedures may be chosen for various reasons including shorter times and more confidentiality.


In Italy, ritual administered arbitration is a viable procedure for resolving disputes among SMEs. This kind of arbitration is managed by specific bodies in accordance with a regulation set out by these bodies. Ritual administered arbitration leads to a ruling, known as the arbitral award, which is directly enforceable as a normal judgement and therefore has the same power as ordinary public courts.

Arbitration is a viable option for resolving disputes if the parties agreed to choose this method when concluding the agreement by inserting a specific clause in the contract. The clause for administered arbitration should be of the following form:

“Any dispute arising out of this contract shall be settled by ritual arbitration under the rules of the Chamber of Arbitration of […]

The arbitration shall be conducted in accordance with the procedures of ordinary arbitration based on law or of expedited arbitration in equity depending on value, as provided for by the regulation”.
The proceeding ends with a ruling (award) which has the same value as a court ruling and is also enforceable abroad.
Arbitral awards are enforceable due to an international convention which received a global consensus: about 200 countries ratified the 1958 New York Convention committing themselves to the mutual recognition and enforcement of arbitral awards.

In the case of a dispute, besides public courts and arbitration the business also has another option. Indeed, it can decide to start a negotiation with the foreign counterpart in order to try to resolve the dispute.

For greater effectiveness, instead of entering into a negotiation directly, the parties may agree to appoint a neutral third party to help them communicate with each other and find a satisfactory agreement going beyond the logic of “right or wrong” which is typical of traditional courts, and would lead the parties to an impasse.

Mediation is an informal and confidential procedure in which the closing of agreement is entirely subject to the will of the parties. The parties may withdraw from the negotiations at any time or may decide not to conclude any agreement. It is also possible to address to an ordinary public court or to an arbitrator, if the mediation attempt is unsuccessful. The Italian Legislative Decree 28/2010 establishes that the record of the agreement may be enforceable subsequent to the approval by the Presiding Judge of the competent Court.