Getting Paid and Paying in Iceland
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Getting Paid in Iceland
Timely payment is essential for the survival of your business in Iceland. It is important you know the systems, protocols and national consensuses of getting paid and paying when doing business in Iceland, because not only may things differ vastly from the practices you are used to, but so could the consequences.
Importantly and fundamentally, terms of services and payment should always be unequivocally stated in a licit agreement.
If you are ever concerned about a company with which you are entering into an agreement with, for instance a wholesaler or freight forwarder in Iceland, make sure you research them thoroughly: look through their portfolio of clients, compare their services and prices, read referrals and testimonials. Check whether the company belongs to a legitimate, national and industrial organisation; someone authoritative which you can report them to should any problems arise.
Likewise, to maintain your own legitimacy and reputability, make sure all your business’s payments are made on time, including costs incurred by such services as utilities and distribution in Iceland.
For recurring services used or rendered, payments are usually made on a periodic basis: weekly, monthly, annually, etc. Providing both companies have legally agreed upon payment terms, both parties’ complaints will be infinitely more empowered in the event of non-payment, or undelivered / insufficient services.
Here are some essentials to consider. These are merely guidelines; you must research thoroughly for yourself the payment protocols.
- Political factors, such as war, civil upset, corruption and exploitation, and security matters. Obviously, different government could impose different structures and rules.
- Economic stability or instability. Will your clients and customers remain solvent? This is always a risk, due to the ever-changing balance of local and national economies.
- Currency fluctuations, foreign exchange and banking climate. All these factors are subject to change, and therefore, so could your payments.
- Examine the risk of any potential customers or clients through trading records, etc, which will abate the chances of delayed or non-payment.
- Remember: the most common reasons for non-payment are insolvency and outright refusal to pay.
- Before entering into any agreements, conduct a credit check.
Both the Export Credits Guarantee Department and the Authorised Economic Operator are in place to protect and reduce the risks your business takes.
Protection, Terms & Conditions
Generally, the following are the main kinds of transaction between you and foreign customers / clients:
- Advanced Payment. The perfect, but not always feasible, method of receiving payment. Payment is made before services are rendered or goods are dispatched, meaning there is no risk of non-payment.
- Also considered a safe way to pay and be paid, Documentary Credits, or Letters of Credit, means a customer agrees with their bank to transfer money to your bank once prerequisites, such as paperwork, are complete and accepted. If everything is accurate, you will be paid punctually. The downside to this method is that you pay a commission to your bank.
- Open Account. A traditional method of sale, in which you provide the customer with the product or service, and accompanying invoice which declares a date by which payment should be made. However, amicable this option appears, it leaves much room for delays and non-payment, so always ensure a customer is someone you either trust or have an established relationship with. Always consider their creditworthiness.
As a business-owner you need to have efficient credit control procedures when selling overseas, Payment for most export transactions takes time, and you will have to finance your export activities until you are paid. You need to make sure you have reliable credit control procedures in place when trading abroad.
Outsourcing Credit Control
Remember, if you are unfamiliar or not confident handling your own credit control procedures, they can always be outsourced. Managed credit insurance schemes can obtain country information, run checks and chase overseas payments. You will have to pay for this service, usually as part of the premium for the credit insurance. Some banks offer this service for a charge.
Invoices can also be sold to debt-factoring houses who will take on the work of recovering the payments. Debt factoring involves selling your invoices to a third party – the debt factoring company. In return the factor will process the invoices owed to your business, and allow you to draw loans against the money. Businesses commonly use factoring to improve their cashflow and reduce administration overheads.
In the event of non-payment, relationships between businesses sour. You could hold your customer liable, or claim the loss from your insurance. A delayed or lost payment could greatly affect your businesses cashflow. It is a good idea to consider insurance against non-payment. When considering non-payment cover you will need to factor in the insurance’s cost to your pricing. You can tailor the protection to suit your businesses’ transactional needs. You may prefer to use a debt collection agency to pursue the debt.
Organisations that can assist with Getting Paid and Paying
At XE, we live currencies. We provide a comprehensive range of currency services and products, including quick, easy, secure Money Transfers for individuals and businesses.
TopSource Worldwide offers a complete range of employer services that allows you to employ and pay people promptly, consistently and compliantly — locally and internationally to suit your business needs. Our systems and processes are designed to work with your technology, and we bring decades of experience and a track record of success to our operations.