International Trade
International trade
Payment methods
Payment Methods for International Trade * Prepayments: The goods will not be shipped until the buyer has paid the seller. * Time of payment: Before shipment * Goods available to buyers: After payment * Risk to exporter: None * Risk to importer: Relies completely on exporter to ship goods as ordered * Letter of Credit (L/C): These are issued by a bank on behalf of the importer promising to pay the exporter upon presentation of the shipping documents. * Time of payment: When shipment is made * Goods available to buyers: After payment * Risk to exporter: Very little or none * Risk to importer: Relies on exporter to ship goods as described in documents * Drafts (Bills of Exchange): A written order instructing the importer or his agent, the importer’s bank, to pay the amount specified on its face on a certain date.
These are unconditional promises drawn by the exporter instructing the buyer to pay the face amount of the drafts. Banks on both ends usually act as intermediaries in the processing of shipping documents and the collection of payment. In banking terminology, the transactions are known as documentary collections.
Sight drafts (documents against payment): When the shipment has been made, the draft is presented to the buyer for payment. * Time of payment: On presentation of draft * Goods available to buyers: After payment * Risk to exporter: Disposal of unpaid goods * Risk to importer: Relies on exporter to ship goods as described in documents
Time drafts (documents against acceptance): When the shipment has been made, the buyer accepts (signs) the presented draft. * Time of payment: On maturity of draft * Goods available to buyers: Before payment * Risk to exporter: Relies on buyer to pay * Risk to importer: Relies on exporter to ship goods as described in documents Open Accounts
Working Capital Financing: Banks may provide short‐term loans that
Payment methods
Payment Methods for International Trade * Prepayments: The goods will not be shipped until the buyer has paid the seller. * Time of payment: Before shipment * Goods available to buyers: After payment * Risk to exporter: None * Risk to importer: Relies completely on exporter to ship goods as ordered * Letter of Credit (L/C): These are issued by a bank on behalf of the importer promising to pay the exporter upon presentation of the shipping documents. * Time of payment: When shipment is made * Goods available to buyers: After payment * Risk to exporter: Very little or none * Risk to importer: Relies on exporter to ship goods as described in documents * Drafts (Bills of Exchange): A written order instructing the importer or his agent, the importer’s bank, to pay the amount specified on its face on a certain date.
These are unconditional promises drawn by the exporter instructing the buyer to pay the face amount of the drafts. Banks on both ends usually act as intermediaries in the processing of shipping documents and the collection of payment. In banking terminology, the transactions are known as documentary collections.
Sight drafts (documents against payment): When the shipment has been made, the draft is presented to the buyer for payment. * Time of payment: On presentation of draft * Goods available to buyers: After payment * Risk to exporter: Disposal of unpaid goods * Risk to importer: Relies on exporter to ship goods as described in documents
Time drafts (documents against acceptance): When the shipment has been made, the buyer accepts (signs) the presented draft. * Time of payment: On maturity of draft * Goods available to buyers: Before payment * Risk to exporter: Relies on buyer to pay * Risk to importer: Relies on exporter to ship goods as described in documents Open Accounts
Working Capital Financing: Banks may provide short‐term loans that