International letters of credit are very confusing financial instruments for most people. The concept is to arrange for a simultaneous delivery of goods and collection of payment. If you bank at a larger commercial bank, your bank has correspondent relationships with banks in other countries. The company or person buying from you in the other country will go to his or her bank and take out a letter of credit (preferably non-revokable). The letter of credit can only be cashed if the bank verifies that the goods you shipped arrived in an acceptable fashion (i.e. not damaged, cleared customs if that is also part of your deal, with the proper shipping documents, etc.). The shipping documents state that there is a "lien" drawn against the letter of credit, so the goods can only be released upon presentation of the letter.

The foreign bank protects both you and your customer by finalizing payment. It forwards the documents to your bank, which reviews the documents, and submits a claim on your behalf to draw against the letter of credit. The foreign bank transfers the money to your bank, which deposits it into your account. Neither merchant (you or the foreign company you sell to) have the chance to default on the other, since the banks are "trustees" that assure execution of the deal is completed once the documents are approved by both parties.

Many American companies prefer to receive payment either in advance or C.O.D. (Cash On Delivery) via an irrevokable international letter of credit. As trust builds between you and your counterpart, you might consider extending limited credit terms, say net 120 days up to a certain amount. Most of the decision to extend credit will depend on what part of the world you are dealing with (the old communist block such as Russia and many African countries have reputations for extensive fraud), and also on personal assessments of the individuals you are working with.

Interestingly, the broader and more far flung your global trading, the more personal you need to get. You need to assess the individuals you are dealing with for cross-cultural understanding of business arrangements and personal integrity. Do they have the commitment to market your product, pay and deal with you honestly, and other highly personal attributes? The best way we know how to do this is to look over your potential global partners in person. In other words, you must visit and spend some time with them, face to face.

The federal government is willing to help arrange meetings, locate prospective agents and customers, and even subsidize part of your global advertising via trade fairs and other US Commerce Department programs. But the bottom line is: Know who you are dealing with. You cannot rely on a common understanding or agreement to adhere to our laws or to accept our ideas of morality.

Part of getting paid involves the risks associated with delivery of the goods. To help you with this, the federal government created the Export-Import Bank (EXIMBANK - really a government agency, not a bank: www.exim.gov). This agency will lend to foreign buyers of US goods, and provide loans to US companies that are involved in exporting. In addition, the EXIMBANK offers export credit insurance for commercial and political risk. So, if you ship to a country where the goods suddenly get expropriated on the docks by a newly empowered regime, the EXIMBANK will reimburse you.

Another similar agency is the Overseas Private Investment Corporation (OPIC: www.opic.gov), which is also really a government agency. OPIC provides loans and loan guaranteees and investment insurance for sales by small businesses to a selected 140 countries. It also insures USA business investments overseas against political violence, inconvertibility of currency, and expropriation.

OPIC also has a Small Contractor's Guarantee Program to help small contractors and construction companies obtain financing for foreign projects.