5 Payment Methods for International Trade

Описание: Getting paid in full, and on time, is the ultimate goal for each export sale. To do that, you need to choose the correct payment method—one that minimizes risk while also meeting your buyer’s needs. This video explains the five primary methods of payment for international sales.

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1. Cash-in-Advance

With cash-in-advance, the exporter receives payment before transferring ownership of the goods. Common options include wire transfers and credit cards. Although this method eliminates credit risk for exporters, it’s the least attractive to buyers as it creates unfavorable cash flow and concerns about whether the goods will be shipped after payment.

2. Letters of Credit

Letters of credit are one of the most secure instruments in international trade. An LC is a commitment by a bank on behalf of the buyer that payment will be made to the exporter, provided that all terms and conditions are met. This method is beneficial when reliable credit information about the buyer is hard to obtain but the buyer’s bank is creditworthy. It ensures payment only after the goods are shipped as promised.

3. Documentary Collections

A documentary collection involves the exporter’s bank collecting payment for a sale by sending the necessary documents to the importer’s bank with instructions to release them upon payment. Although banks facilitate these transactions, D/Cs offer no verification process and limited recourse in the event of non-payment. But they are less expensive than LCs.

4. Open Account

In an open account transaction, goods are shipped and delivered before payment is due, typically in 30, 60, or 90 days. While this method is advantageous for the importer, it poses high risk for the exporter. Exporters can mitigate this risk by using trade finance techniques and export credit insurance, which we explain in more detail in our video on open account.

5. Consignment

Consignment is a variation of the open account where payment is made only after the goods are sold by the foreign distributor. This method is risky as the exporter isn’t guaranteed payment and the goods are managed by an independent distributor in a foreign country. Success depends on partnering with a reputable foreign distributor and having appropriate insurance in place.

Each payment method has its advantages and risks. Choosing the right one depends on your specific situation and the level of risk you’re willing to accept. For more detailed information on these methods, look for links above to our other videos and articles, along with a link to download a free Trade Finance Guide, explaining more about each option.

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Chapters
00:00 Introduction
00:41 Five Primary Methods of Payment for International Sales
01:04 Cash-In-Advance
01:27 Letters of Credit
01:56 Documentary Collections
02:22 Open Account
02:48 Consignment
03:13 Trade Finance Guide

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