Retention of title is not the best hedge
Important in the choice of payment protection is whether the receivables can be enforced in the exporting country as well as the willingness of the buyer to accept the proposed arrangements.
In the case of a 100% advance payment, which, however, is very rare in foreign trade, the exporter no longer has any risk; in the case of a down payment, there still remains the residual risk for the amount not yet paid.
Retention of title
In case of retention of title, the goods remain the property of the seller until full payment of the purchase price. In the event of bankruptcy of the buyer, it does not fall under the bankruptcy estate, but is segregated from it.
Retention of title is also possible in business with foreign countries, but its effectiveness depends on different national regulations. Sometimes it is required that it be expressly agreed in the contract and not merely mentioned in the general terms and conditions.
It is therefore necessary to check with a local lawyer on a case-by-case basis. Overall, retention of title is generally not a suitable means of security for an export transaction. There are two reasons for this - apart from its often problematic enforceability:
- In developing countries in particular, the re-export of goods that have been segregated on the basis of retention of title is subject to an export permit, which, however, can hardly be obtained by a foreigner. The goods can therefore no longer be taken back.
- The transport costs from distant countries can be so high that taking back a - not very valuable - good is no longer worthwhile at all.