METHODS OF INTERNATIONAL PAYMENT

METHODS OF INTERNATIONAL PAYMENT

 

 

CASH IN ADVANCE

•      Cash in advance is a payment method in international trade in which an order is not processed until full payment is received by the supplier in advance.

•      Sometimes cash in advance is called cash with order.

•      under the cash in advance, the funds received by the exporters before the goods is transferred to the importers.

•      Cash in advance possess highest risk to the importer, lowest risk to the exporter.

 

OPPEN ACCOUNT

•      Open account means that buyers pay the cost after the goods have been shipped by the supplier.

•      In an international trade transaction, open account defines as a sale where the goods are shipped and/or delivered before payment is due, which is usually in 30 or 60 days.

•      Open account posses highest risk to the exporter, lowest risk to the importer.

 

 

CONSIGNMENT

Delivery of goods to the intermediary (importer) who will sell the goods to the final buyer, ownership of the goods remains owned by the exporter until the goods are sold

Consignment possess highest risk to the exporter, lowest risk to the importer

 

 

DOCUMENTARY COLLECTIONS

•      Is an International trade procedure in which a bank in the importer’s country acts on behalf of an exporter for collecting and remitting payment for a shipment.

•      The exporter presents the shipping and collection documents to their bank which sends them to its correspondent bank in the importer’s country.

•      The foreign bank (called the presenting bank) hands over shipping and title documents (required for taking delivery of the shipment) to the importer in exchange for

•      cash payment (in case of ‘documents against payment) or

•      a firm commitment to pay on a fixed date (in case of ‘documents against acceptance).

•      A documentary collection (D/C) is a transaction whereby the exporter entrusts the collection of a payment to the remitting bank (exporter’s bank), which sends documents to a collecting bank (importer’s bank), along with instructions for payment.

•      Funds are received from the importer and remitted to the exporter through the banks involved in the collection in exchange for those documents.

 

 

DOCUMENTS CREDITS / LETTER OF CREDITS

•      Documentary credits, also known as letters of credit, are one of the payment methods in international trade.

•      Letter of credit defined as “any arrangement, however named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honour a complying presentation.”