There are many payment methods in international trade for exporters and importers worldwide. And, as the world continues to grow, an increase in international payment methods is growing too. However, trading at international levels has always a certain level of trust and risk, the amount of risk is highly involved when it comes to payment modes.
First of all, take a glance of international payment methods and choose the one that is most reliable for you. There are five primary methods of payment to be used in international sales.00
5 Payment Methods In International Trade
In this term, an exporter can prevent the credit risk as the payment is received before the responsibility for merchandise is transferred. For worldwide deals, wire transactions and credit cards are the usually utilized cash-in-advance options accessible to exporters.
Due to the advancement of the internet, the escrow services are turning to become another cash-in-advance option for small export transactions.
2. Letters Of Credit
Letters of credit (LCs) are one of the most secure methods accessible to global brokers. A letter of credit is a commitment by a bank on the behalf of the purchaser that contains the terms and conditions regarding the payment made to the exporter and these are verified by the presentation of all required documents. The purchaser sets up credit and pays his/her bank to render this service. An LC likewise secures the purchaser since no payment commitment emerges until the merchandise has been delivered as guaranteed.
3. Documentary Collections
D/C is a process in which the banks of both buyer and seller act as facilitators of the trade. The seller will have to submit the documents required by the buyer such as a bill of lading to the bank. The sellers’ bank will then send these documents to the buyer’s banks enclosed with payment instructions. The documents that are remitted at a specified date are released in exchange for payment. This method is recommended as more economical than letters of credit.
4. Open Account
In an open account transaction, the products are shipped and delivered before payment. This method is proving to be the most attractive option for the purchasers especially in the term of cash flow.
Using this option, the sellers will ship the goods to the purchaser along with the credit period. This is generally in 30-, 60-, or 90- days periods. During this, the buyer has to carry out the full payment.
Open accounts are recommended the trustworthy method that minimizes the risks.
Consignment is a process wherein the payment is made after the foreign distributor has sold the goods to the end customer. An international consignment transaction consists of an arrangement in which the foreign distributors receives, sells and manages the goods for the exporter who retains titles to the goods until they are sold. Remember, exporting on consignment can be risky because the exporter is not guaranteed to any payment but it makes the exporters more competitive due to better availability and faster delivery of goods. Moreover, it helps the exporters to the direct costs of storing and managing inventory.
If you are planning to export on consignment, collaborating with a reputable and trustworthy foreign distributor or third party logistics provider is recommended the most.
Global exchange displays a range of hazard, which causes vulnerability over the planning of payments between the exporter and importer. To choose the right method for your intentional trade, right consultation plays an important role.
At Ismail Alptekin Business Developer, we can assist you at every step in the international trade right from establishing the business to making it successful.