How Does a Seller Finance DDP (Delivery Duty Paid) Terms?

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Sellers often struggle to extend credit terms for international sales, as the cash flow dynamics are different from domestic transactions. In domestic sales, products are typically delivered within a week, with payment terms ranging from net 30 to net 60 days. Most financially stable companies can manage this cash flow cycle. However, challenges arise when sellers need to ship products internationally and offer DDP (Delivery Duty Paid) terms.

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What Does DDP Incoterms Mean?

DDP Incoterms place the highest financial burden on the seller. Under DDP, the seller is responsible for covering all shipping costs, cargo insurance, customs duties, and any additional fees associated with getting the goods delivered directly to the buyer’s location.

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In this arrangement, not only does the seller bear the product costs, but they also assume the liability for delivering the goods internationally. To make the offer competitive, sellers often extend attractive credit terms, ranging from net 30 to net 120 days after delivery. Even if shipping costs are charged to the buyer, the seller may still face a significant cash flow gap—waiting weeks or even months for the product to be delivered, followed by the extended credit terms before receiving payment.

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What are the Typical Challenges Sellers Incur?

While financially strong sellers my have a bank line or a domestic asset based lender, international sales are usually ineligible to finance, usually leaving the seller turning away the sale. If we take a typical transaction on DDP terms for example, it may take 60 days for delivery plus 90 day credit terms places the net days outstanding at 150 days. If the seller is shipping a container every 30 days, that equates to 5 shipments and 5 months before the first payment starts to process. This scenario can put a seller at a very disadvantageous cash flow position.

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What Are the Typical Challenges Sellers Incur?

Even financially strong sellers with access to bank lines or domestic asset-based lenders often find international sales ineligible for financing, which can result in lost sales opportunities. For instance, in a DDP transaction, it might take 60 days for delivery, followed by 90-day credit terms, leaving the seller with 150 days before receiving payment. If the seller ships a container every 30 days, they could have five shipments in transit before the first payment is processed. This prolonged cash flow cycle can put the seller in a challenging financial position, significantly impacting liquidity and increasing the risk of cash flow shortages.

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How Can 1st Commercial Credit Help Sellers Obtain Financing?

1st Commercial Credit offers  International Factoring and in-transit financing solutions for recurring international transactions. This financing is structured as a combination of pre-delivery funding and invoice factoring. Once the shipment is picked up by one of our approved logistics partners, pre-delivery funding can be initiated using a pro forma invoice. After the buyer receives and accepts the goods, the invoice factoring arrangement is used to settle the pre-funding, with the remaining balance sent to the seller. This approach helps sellers manage cash flow and maintain liquidity throughout the transaction process.

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What Type of Transactions Are Eligible for This Financing?

1st Commercial Credit approves this type of financing based on straightforward criteria. The buyer must be financially strong and credit-insurable, and the seller should have a minimum profit margin of 20%. Additionally, the buyer must have already tested and approved the products and committed to ongoing purchases. We do not finance one-time or non-recurring sales. Initially, only invoice factoring is offered, with pre-delivery funding becoming available after 1^st Commercial Credit receives the first payment from the buyer.