Payment terms are the requirements both parties agree to in order to finish the payment process. Generally, exporter wants to be paid before releasing products, and importer wants to receive merchandise before making payment. Learn export import online with us and have a deep understanding of international trade payment methods.   Choosing an appropriate payment method that is advantageous for both the exporter and importer is crucial to increasing business at an international level. In international trade, different payment methods and terms are available that both parties can select according to their convenience. 

Different Types of Payment methods- 

1 Cash in Advance- 

In simple terms, cash with advanced is a method where the payment is received before goods ownership is transferred. It is also called cash on order. Options for payment include wire transfers, international cheques, and payments by debit cards.  It is one of the safest methods of payment for the exporters, while it is the least appealing for the importers. Cash in Advance poses a great deal of risk to the importers, as the exporter remains in possession of the goods and has received payment. 

2 Letter of Credit- 

In this type of payment, a bank acts as a principal on behalf of the importer and promises to pay an exporter if all terms of the contract have been met. It is one of the safest and most common forms of payment in international trade.  This type of document also protects the buyer since the buyer is not obligated to pay until the goods have been shipped. LCs are commonly used when there is a new and untested trading relationship between the importer and exporter. 

3 Open Account- 

The importer receives the goods on credit and pays them later. Open accounts are terms of payment in which the goods are shipped before payment is due. Usually, payment is due in 30, 60, or 90 days.  Taking delivery of goods without paying for them is clearly in the favor of importers, but it entails a higher risk for exporters since there is the risk of non-payment or bankruptcy. 

4 Documentary Collection- 

Exporters instruct their banks to send the documents related to the sale to the buyer’s bank with a request that the documents be presented to the buyer as a request for payment. They also specify when and under what conditions the documents can be released to the buyer.  A documentary collection is a kind of payment that occurs between two banks acting on behalf of both parties. 

5 Consignment- 

 The consignment payment in international trade procedure in which payment to the exporter is sent after the goods are sold to the customers by the importers. The payment method works like an open account.   Exporters who use this payment mode are at risk since they are not guaranteed to receive payment. The exporter retains ownership of the goods while they are in the possession of the importer. 

Conclusion-  

It’s up to the two parties to negotiate and agree on these critical trade terms, some payment terms will be more favourable to the exporter and some to the importer. Exporters and importers need to understand the different payment terms that are available and the costs & risks attached to each.  To understand more about payment terms, join import export management course. You can also attend our live free webinar and start your import export business in just 60 days. Click the link below to attend the webinar.   https://chat.whatsapp.com/Bqz4SWH55nSGtKj3GnJAC8 Do give us a visit