Expanding internationally is a great opportunity for small and medium-sized enterprises, but the legal and contractual aspects, which may be different from country to country, require deep analysis and organization
Here is a list of the main international trade payment methods recognized by the International Trade Administration.
Cash-in-Advance
The buyer (importer) sends the payment before receiving the goods. Upon receipt of payment the seller (exporter) ships the goods and related documentation to the buyer.
Open Account
The seller ships the goods and relevant documentation directly to the buyer who agrees to pay the bill at a future date (usually 30 to 90 days).
Documentary Collection
The exporter entrusts the collection of the payment to his bank, which will send the commercial documentation relating to the goods to the importer’s bank, along with instructions for payment. The buyer will be requested from his bank to make the payment. The documentation will be then used to clear the goods.
Letter of Credit
It is widely used, as it offers a guarantee issued directly by banks.
An L/C is a commitment by a bank, on behalf of the buyer, that payment will be sent to the exporter upon presentation of the shipping documents (invoices, certificates of origin, bills of lading, etc). Key clause is that the documents fully comply with the terms and conditions outlined in the letter of credit.
There are also other methods and can be combined with each other in many ways. Each presents different levels of risk for a part rather than the other. And to minimize them it is useful to rely on a solid banking system to monitor the situation.
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