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Several common payment methods for international import and export goods
[2023-11-21]

Several common payment methods for international import and export goods


Payment is one of the most important links in international trade. In international trade, different payment methods include different payment time, payment place and payment method. The commonly used payment methods mainly include cash, payment on delivery, payment against documents, accounting, collection, letter of credit, installment and deferred payment.

1. Pay cash

Cash is divided into cash on order and cash before shipment. The former means that the buyer shall remit the full amount of the payment to the seller through the bank in the agreed manner at the time when the contract is signed or the order is placed, or within the specified time thereafter; The latter means that the buyer should pay in full a few days before the shipment of the goods, as a condition of the seller's shipment, this payment method is the most beneficial to the seller, but the buyer has to bear a greater risk, and backlog of funds, so the scope of use is narrow, mostly limited to the special goods processed for the buyer or the best-selling goods that the buyer is eager to buy.

2. Payment on delivery

Payment on delivery means that the buyer is liable for payment only when the seller delivers the goods at the named place. In this case, the seller's delivery and the buyer's payment are mutually conditional. This principle is generally applicable to all kinds of sales contracts characterized by physical delivery, such as: factory delivery contract, free delivery on board the port of destination contract and so on. As a method of payment, the common "cash on delivery" terms are cash on delivery, which means that the buyer pays cash on delivery by the seller. Unless otherwise stipulated in the contract, cash on delivery is generally paid to the seller through the bank after the buyer has accepted the goods.

3. Payment against documents

Payment against documents means that the buyer is liable for payment after the seller has delivered the qualified shipping documents as stipulated in the contract. In this case, the seller's presentation and the buyer's payment are mutually conditional, and the seller shall deliver the title document (bill of lading) and other shipping documents representing the ownership of the goods to the buyer only on the condition that the buyer makes payment or promises to make payment. The buyer shall pay or undertake to pay only when the seller delivers the documents as required. Ownership of the goods is generally transferred when the buyer makes payment and obtains documents. As a method of payment, the common terms of D/P payment is cash against D/P, that is, cash is transferred by the buyer through the bank upon presentation of D/P by the seller.

4. Bookkeeping

Bookkeeping is also called special account bookkeeping. After the seller has shipped the goods for export, the shipping documents are sent to the buyer, and the payment is debited to the buyer's account, and then settled regularly according to the agreed period. At the time of settlement, it may be stipulated that the buyer shall remit the account to the seller through the bank, or that the seller shall draw a bill to collect the payment from the buyer. Essentially, bookkeeping is a credit transaction. The seller will not be able to recover the payment until some time after delivery, the risk is greater, and it is generally difficult to obtain financing from banks, so this method is mostly used for trade between exporters and their branches or customers with special relationships.

5. Collection

Collection refers to A settlement method, including D/P (Documents against payment) and D/A (documents against acceptance), in which the exporter issues a draft payable to the importer and entrusts the exporter's bank to collect payment from the importer through its branch or agent bank in the importer. Collection is more risky for the exporter, D/A is more risky than D/P, but it is more beneficial for the importer, which can avoid the procedures of opening the credit card and advance deposit, as well as the convenience of pre-borrowing the goods.

6. Letter of Credit

Payment by letter of credit is a major payment method in international trade. It is a settlement method that is paid by the bank to the seller (exporter) on behalf of the buyer (importer) in accordance with the documents. Its biggest advantage is that the bank credit is used as a guarantee for payment. The exporter only needs to submit various documents in accordance with the requirements of the letter of credit, so that "only consistent, consistent documents" can get the bank's payment. Since the payment of goods is conditional on obtaining the shipping documents conforming to the provisions of the letter of credit, the risk of payment in advance is avoided, so the payment method of the letter of credit solves the contradiction between the import and export parties in payment and delivery to a large extent. It has become a major form of payment in international trade.

7. Pay by installments

Payment by installments according to construction or delivery schedule. This is a payment method often used in transactions such as long production cycles, expensive raw materials, or large machinery and equipment, engineering projects, which are specially processed and produced for the buyer. The specific practice is that within a period of time after the signing of the contract, the importer pays a certain percentage of the price of the goods, usually 5% to 15%, as a deposit according to the photocopy of the export license provided by the exporter and the refund guarantee issued by the bank (the guarantee exporter fails to perform the contract, the bank is responsible for returning the principal and interest of the loan). Thereafter, payment shall be made in installments, the schedule of each installment and the amount of each installment shall be agreed upon by the buyer and the seller according to the nature of the goods, the stage of processing or the schedule of delivery. The last payment is usually made upon delivery or upon arrival of the goods or upon expiration of the warranty period. So a contract on installment terms is actually a demand contract, in which ownership of the goods is transferred when the last payment is made.

8. Deferred payment

A form of payment that promotes exports, especially machinery and equipment, by providing medium - and long-term credit, which in many countries falls under the category of seller's credit in export credits. It is a common practice for the buyer and seller to provide in the contract that within a certain period of time after the contract, the importer will pay a part of the payment, usually 5% to 15%, as a deposit on the basis of the photocopy of the export license provided by the exporter and the money back guarantee or standby letter of credit provided by the exporter's bank, and then pay in installments according to the construction and delivery schedule as mentioned above. Pay in installments a small portion of the purchase price, which can be paid by usance bill or promissory note. Most of the rest is paid over a period of time after delivery, usually three to five years, but also up to 15 years, in installments (usually every six months) with interest.

Under the deferred payment terms, the exporter needs to borrow funds from the bank while providing credit to the importer for its own turnover needs, and the interest costs incurred in this respect usually have to be transferred to the importer. Since the bulk of deferred payment is spread over a considerable period of time after delivery, it is a type of credit sale, that is, the buyer uses the seller's funds. In the case of deferred payment, title to the goods is generally transferred at the time of delivery unless otherwise provided for in the contract.


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