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PAYMENT METHODS IN FOREIGN TRADE

  Exporters, want to receive payment as soon as possible, preferably as soon as an order is placed sent to the importer. There are 7 payment methods available. These methods;

  • Cash-in-Advance
  • Open Account
  • Consignment
  • Cash Aganist Goods
  • Cash Aganist Documents
  • Letter of Credit
  • Bank Payment Obligation

CASH IN ADVANCE

  The importer pays the price of the goods before the delivery. Exporters want foreign cash payment because of this reason. The exporter has no risk. In this method, the risk belongs to the importer. Another advantage for the exporter is that it provides pre-financing to produce, prepare and ship export goods in case of advance payment. The advantage of payment in advance for the buyer is the high discount.

 

 

 

 

 

 

 

 

 

 

 

 

 

OPEN ACCOUNT

   The exporter sends the goods without taking the price. The cost of goods is not clear when the allowance. It is the most ideal method for the importer because no specific day has been specified for the payment of the goods. The seller's risk is unlimited but the buyer has no risk. Generally, this method is preferred in the sales of companies to foreign agencies and branches.

 

CONSIGNMENT

  Sending goods to brokers or branches and representative offices abroad for sale at a later date. Buyers of goods shipped for sale sell the product at current value. Due to the lack of certainty in sales, the risk belongs to the exporter. Since it is a risky method, another sales method can be applied. Name of this method: Joint Account. In this case the sales price is guaranteed.

 

CASH AGANIST GOODS

  It sends the goods to the importer without any payment to the exporter. The cost of the goods shall be paid at a later date specified in the contract or after the products have been sold. In this case, the risk is on the exporter. The importer needs to be well known, trusted or guaranteed by a bank guarantee. The importer makes payment for the goods at a date after the goods are cleared through the customs.

CASH AGANIST DOKUMENTS

  In the payment method against documents, delivery of documents to the buyer is made in return for the collection of goods. Unlike letter of credit, banks do not guarantee any payment to the exporter. Exporters are fully responsible for the risk of non-payment. There is no examination by the banks against documents. This poses a risk for the importer.

LETTER OF CREDIT – L/C

  Letters of credit are one of the most secure instruments available to international traders. The administration of the terms and conditions specified in the letter of credit by a bank agreed on behalf of the buyer is a commitment that the exporter will be paid when all necessary documents are verified. It protects the buyer from the obligation to pay until the goods are shipped as promised.

 

BANK PAYMENT OBLIGATION

  Bank payment obligation is a new payment method in international trade. Bank payment obligation is an irrevocable undertaking given by an Obligor Bank (typically buyer’s bank) to a Recipient Bank (usually seller’s bank) to pay a specified amount on a agreed date under the condition of successful electronic matching of data according to an. It is a very demanding method for transferring and processing information.


REFERENCE 

https://www.arfunding.org/cash-against-documents-funding/

https://www.export.gov/article?id=Trade-Finance-Guide-Methods-of-Payment

https://www.slideshare.net/bronwenelizabeth/internatinal-trade-orientation-2013

https://2016.export.gov/tradefinanceguide/eg_main_043221.asp

https://www.icontainers.com/help/international-payment-methods/

https://www.quora.com/What-are-the-method-of-payment-in-international-trade

https://www.ianswer4u.com/2018/03/letter-of-credit-parties-types.html