The First Export Order: A Checklist from Payment Terms to Customs

Why the first export order is different

Many small businesses come to exporting not through a strategy but through an inquiry. A customer from Austria found the website; a dealer from Switzerland asked for a quote at a trade fair. The product or service is the same as at home. Almost everything around it is different: how payment is made, who bears transport, which tax goes on the invoice, and whether the goods may be exported at all.

Put simply, the question is: what must a small business have clarified before its first export order so that the order does not turn into a loss? To answer it, we first put the situation in context with figures, then present a mental model for a step-by-step entry, go through the four risks in turn, weigh two perspectives on payment terms, and sum everything up in a checklist.

Small businesses are no exception in exporting. According to the IfM Bonn, a German research institute for small and medium-sized businesses, around 255,000 small and medium-sized enterprises exported goods in 2024, earning around 268 billion euros, about 62 percent of it in the EU single market. These figures and the development of individual target markets are described in detail in the analysis exporting and sales.

The high share of the single market has a practical reason: within the EU, customs declarations are not needed, and VAT follows uniform basic rules. Anyone exporting for the first time therefore often starts in a neighboring country. This is no coincidence but a sensible path, as the following mental model shows.

The mental model: exporting as a learning process

The Uppsala model of Johanson and Vahlne (1977) describes expansion as a learning process: as knowledge about a market grows, commitment to it grows, step by step. Those who know little commit little. Those who learn through orders how a market works can invest more. The guide expanding into a new region applies the same model to domestic expansion.

Brouthers, Nakos, Hadjimarcou, and Brouthers (2009) tested whether this logic holds for small firms. They surveyed privately held firms with no more than 100 employees from Greece and several Caribbean countries and measured export success by whether owners rated it better or worse than their domestic business in terms of sales and profitability. Their result: firms that limited themselves to a few foreign markets while achieving a substantial share of their sales through exports performed best. The authors explain this by the fact that small firms can build enough knowledge and a robust distribution network in only a few markets.

The study measures success through respondents' assessments, not financial statements, and concerns small countries outside Germany. Its core message, however, fits the export ladder described in the article on exporting: first serve individual inquiries, then a test market with a partner, then your own sales operation on site. For the first order this means: it is above all an opportunity to learn, and it should be secured so that a mistake does not become expensive.

The first export order should not earn a lot but teach a lot, without costing a lot.

Risk one: payment

A payment default abroad is harder to recover than at home. The analysis on exporting cites a survey according to which 80 percent of small exporters name customer payment default as their main concern. The choice of payment terms is therefore the most important decision before the quote. The common forms differ in who bears the risk.

• Payment in advance: The customer pays before delivery. Safest for the exporter, often hard for a new customer to accept.
• Letter of credit: The customer's bank promises payment if the exporter presents certain documents. If a German bank confirms the letter of credit, it additionally bears the risk of the foreign bank. Letters of credit are laborious and usually pay off only for larger amounts.
• Documentary collection: The documents the customer needs to take over the goods are released to them through banks only against payment or acceptance of a bill of exchange. Cheaper than a letter of credit, but without a bank's promise of payment.
• Payment term: As at home, but harder to enforce. It can be secured through credit insurance or, for larger deals, through government export credit guarantees.

The currency of invoicing is the second payment question. Invoicing in euros shifts the exchange rate risk of an invoice to the customer. How to weigh this is shown in the analysis currency risks in exporting.

Risk two: delivery and Incoterms

Who bears transport, who bears insurance, and from when does risk pass to the customer? In international trade, this is governed by the Incoterms, standardized delivery clauses of the International Chamber of Commerce (ICC). The version in force is Incoterms 2020 with eleven clauses. The ICC has begun work on a successor version, but no date for it to apply has been set yet. It is therefore important to state “Incoterms 2020” and a precise place explicitly in the contract.

Risk three: VAT and customs

Here the first question is whether the customer is located in the EU or in a non-EU country.

Supply to a business in another EU country. Such an intra-community supply is VAT-exempt under certain conditions. Since 2020, these explicitly include two points that used to count as mere formal errors: the customer must use a valid VAT identification number from another member state, and the exporter must report the supply correctly and completely in the recapitulative statement. If either is missing, the exemption is lost. The validity of the number can be confirmed by Germany's Federal Central Tax Office. Customs declarations do not apply within the EU.

Supply to a non-EU country, such as Switzerland or the US. The export supply is VAT-exempt if the export is proven. For this, the exporter needs an EORI number, an identification number for customs purposes applied for at the customs authority. Exports are usually declared electronically via the German ATLAS system, either directly through the customs portal or via a freight forwarder. There is a simplification for small shipments: according to the chamber of commerce, an oral declaration at the customs office of exit is sufficient if the value is up to 1,000 euros, the weight does not exceed 1,000 kilograms, no license is required, and further conditions are met. Artificially splitting a larger shipment does not exempt it from declaration.

Anyone selling abroad on a lasting basis soon runs into further questions, such as registration in the destination country or a permanent establishment. These basics are set out in the analysis selling across borders.

Risk four: law and export controls

Two legal questions belong before every quote abroad. The first is export control. Certain goods may only be exported with a license, above all those that can also be used militarily, so-called dual-use goods. Embargoes apply to some countries, and business with persons and companies on sanctions lists is prohibited. In Germany, licenses are issued by the Federal Office for Economic Affairs and Export Control (BAFA). A small business should also check whether its goods or its customer are affected.

The second question is applicable law. Between businesses from states that have adopted the UN Convention on Contracts for the International Sale of Goods (CISG), it applies automatically to sales of goods unless expressly excluded. It differs from German law on some points. Whether to use it or exclude it should be a deliberate decision. Add to this the place of jurisdiction and the language of the contract. How to check an unknown customer beforehand is described in the guide due diligence on business partners.

Two perspectives: play it safe or open the market?

The first perspective says: with the first order, security counts. Payment in advance or a letter of credit, delivery ex works or free carrier, no experiments. A default with the first customer can cost a small business more than the whole market brings in for years.

The second perspective says: if you are too cautious, you will not get into the market. Hunt and colleagues (2023) found among small timber exporters that more generous payment terms went along with more sales per market, partly through referrals from satisfied customers. Terms that were too risky, however, went along with poorer profitability and lower chances of survival, as the analysis on exporting describes.

I consider staging by customer the sustainable path. For the first order from an unknown customer, a secure term applies. With each paid order, it is relaxed, up to a payment term with credit insurance. This corresponds to the learning process of the Uppsala model: commitment grows with knowledge, including with the individual customer. How receivables are then collected consistently is shown in the analysis late payment and receivables management.

The checklist for the first export order

• Customer checked: company, register, creditworthiness, sanctions lists.
• Goods checked: license requirement under export controls, embargo in the destination country.
• Payment term set: for the first order, payment in advance, a letter of credit, or a secured payment term.
• Invoice currency set and exchange rate risk assessed.
• Incoterms 2020 agreed with a precise place, transport costs to the destination known.
• EU customer: VAT identification number confirmed, recapitulative statement planned.
• Non-EU country: EORI number in place, export declaration clarified, proof of export will be kept.
• Contract: applicable law, place of jurisdiction, and language chosen deliberately.
• Tax advisor and chamber of commerce consulted once before the first order.

Once the checklist has been worked through, it is worth filing it as a template. A second order to the same country then takes only part of the time. Cultural differences in the sales conversation, which no checklist captures, are described in the analysis culture and markets.

Conclusion: what must be settled before the first export order

To answer the guiding question: before its first export order, a small business must have clarified four risks. For payment, it needs a secure term for an unknown customer and a deliberate invoice currency. For delivery, it needs an Incoterms 2020 clause with a precise place. For tax and customs, it must distinguish whether the customer is in the EU, where a valid identification number and the recapitulative statement determine the exemption, or in a non-EU country, where an EORI number, an export declaration, and proof of export are needed. For law, it must have checked export controls and applicable law.

The Uppsala model and the findings of Brouthers and colleagues (2009) suggest seeing the first order as a learning step and concentrating on a few markets. A secured first order in a nearby market is therefore not a sign of timidity but the beginning of an export strategy that a small business can sustain.