As a Fair Trade manufacturer based in Nepal, Purnaa must adhere to Fair Trade payment terms and Nepal payment terms (also known as the Full Payment Before Export Regulation or Nepal’s Special Requirements). Here we explore the definition of these payment terms, why Purnaa has adopted them and the positive impact they have on businesses.
What Are Payment Terms?
In international trade, payment terms are the agreed-upon conditions that dictate when and how payments for goods or services are made between buyers and sellers. These terms play a crucial role in shaping the financial dynamics of business relationships, providing a framework for fair and transparent transactions.
Establishing fair payment terms is essential to ensure that both buyers and sellers operate within a secure and predictable financial environment. It helps mitigate risks, promotes financial stability, and fosters a sense of trust and accountability in the global marketplace. Depending on the working relationship brands may have with their suppliers, payment terms range from partial payments before the goods leave, to everything being paid after a certain amount of time once the goods are delivered. This article specifically reviews Fair Trade payment terms and Nepal's payment terms (also known as Nepal's Special Requirements).
What Makes ‘Fair Trade’ Payment Terms Different?
Principle 3, of the 10 Fair Trade principles, requires that an interest-free pre-payment of at least 50% is made when an order is placed. According to the Fair Trade Standard, buyers have a responsibility to provide advance payments. This is to ensure that less of the financial risk and burden is placed on suppliers.
Purnaa is a Guaranteed member of the World Fair Trade Organisation and undergoes an audit process to ensure it adheres to Fair Trade principles. Accordingly, Purnaa requests Fair Trade payment terms - a 50% advance payment from customers to confirm a Purchase Order.
Nepal’s Unique Payment Terms
Nepal's payment terms mandate that goods must be paid in full before they are exported. This regulation aims to safeguard local businesses from financial uncertainties and ensure a fair and transparent trading environment. The law enforcing this mandate is commonly known as the "Full Payment Before Export" regulation or Nepal's Special Requirements, and it applies to all businesses engaged in international trade within Nepal.
Under the Nepal Foreign Exchange Act (1962) and Rules (1963), exports are permitted only against advance payment which must be confirmed with bank documentation or a Letter of credit (L/C or sometimes LoC in Nepal) to ensure that the payment for the goods is received in Nepal.
Using an L/C, allows a buyer to receive and inspect goods before releasing payment. However, obtaining an L/C can be time-consuming, involve relatively expensive bank fees, and must be generated for each shipment so most companies buying from Nepal opt for giving advance payment at the time of shipping unless they are ordering a very large quantity in one shipment.
What Are Purnaa's Payment Terms?
As Purnaa is both Fair Trade guaranteed and based in Nepal, we require a 50% down payment to begin the order. This allows us to purchase materials upfront without the financial risk of purchasing on behalf of our customers. In actuality, materials typically account for over 50% of the cost of the product. A factory also needs to pay for overheads, fixed costs, wages, and all of their other costs during production.
The remaining 50% is due when the goods are ready to be shipped or an L/C must be provided by the customer. When buying via advanced payment, the full amount must be confirmed in Purnaa’s bank account by the Nepal Customs Department so that the goods can be exported.
The 100% payment of goods on leaving the factory serves as the Government of Nepal’s strategic measure to distribute financial responsibilities and risk evenly between buyers and Nepali exporters. It is also an anti-corruption measure, designed to force export shipment value declarations to exactly match the actual funds received.
By securing the payment before goods arrive, Purnaa not only follows Nepal’s unique laws but also reinforces the principles of Fair Trade, promoting fairness and equity in business transactions.
Embracing Responsible Fair Trade Practices
In the ever-evolving landscape of international commerce, adopting responsible Fair Trade practices is paramount. Purnaa's approach to payment terms reflects a commitment to ethical business conduct and serves as a model for navigating the challenges of global trade responsibly. The catastrophic failure of brands to pay for goods during the COVID-19 pandemic highlighted the need for fairer payment terms in the industry.
In a more recent case, the bankruptcy of a well-known Fair Trade brand, has prompted the WFTO to reiterate guidance to suppliers, reminding them to responsibly conduct business in line with Fair Trade standards by requiring a 50% downpayment on all orders. We are happy to see more manufacturers advocating for fairer payment terms and that momentum is being built towards more ethical practices in the industry.
Get Started Manufacturing
Purnaa is a full-service sewing and knitting fair-trade, social enterprise manufacturing company in Nepal with a mission to create jobs that empower marginalized people to fresh starts and fulfilled lives. We specialize in custom caps and hats with sublimation and embroidery, stuffed animals, t-shirts, bags, and fully custom contract sewing and knitting manufacturing.
Reach out today to start your sample journey email@example.com
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