International trade is a necessary part of the economy of every country. The growth of Information and Communication Technologies (ICT) has resulted in the transformation of the entire world into a Global Village, where the distance does not pose a problem in the trade. To succeed in the global market and win sales against foreign competitors, exporters should offer customers attractive sales terms backed up by the right payment methods.
Because being paid in full and on time is the ultimate goal for each Export sale. Should select payment method circumspectly to reduce the payment risk while satisfying the purchaser’s needs.
For exporters, every sale is considered a gift until the payment has been receiv. As such, they must accept the payment. As soon as possible, most likely. Preferably as soon as an order is place or before the goods are sent to the importer. For importers, any transaction is a gift until the items are receiv. They wish to receive the items as soon as possible but delay payment as long as possible.
You must understand the basics of business export import by consulting industry experts and guide you if you are beginning in this field.
There are five principal ways to pay to facilitate international trade. In the course of contract negotiations or before discussions, you must be aware of which one shown in the figure is beneficial for you and your client.
There are three standard methods of payment terms in the trade of exports and imports international market for business –
1. Clean Payment
- Advance Payment
- Open Account
2. Collection of Bills
- Documents against Payment D/P
- Documents against Acceptance D/A
3. Letters of Credit L/c
Also Read – Import Export Procedures In India
1. Clean Payment
All shipping documents, including title documents are been handled directly between the trading partners. The function of banks is to only exact amounts as required. A clean payment method is an affordable and simple method of paying both exporters and importers. When using the advance payment method, the exporter can deliver the product when they have received payments from importers.
An importer pays the money to the exporter before shipment. In the open account method, the importer is obligat by the exporter to settle the bill following the receipt of products.
Wire transfers or credit cards can be the most widely employ options for exporters in international transactions. With the development of the Internet and escrow services, escrow services have turned into an alternative option for smaller export transactions.
2. Payment Collection of Charges
The exporter of international trade entrusts the management of financial and sometimes commercial documents to banks and provides banks with the required instructions for releasing the records to the importer. It is thought of as one of the most cost-effective ways of proving an exchange for buyers when documents are controlled through banks. Documents not in payment are given to importers after the transaction has been complet. And documents against acceptance have been released to the importer only against acceptance of a draft.
3. Letter of credit
Letter of credit is a payment term use by both importers and exporters. Letters of credit (LCs) are among the most secure instruments available to international traders. LC is a commitment by a bank on behalf of the buyer, that will make payment to the exporter, If the terms and conditions stated in the LC have been met, as confirm by submitting any necessary documents
As mentioned above, I explained payment terms in the export-import business. You can start an import-export business but have no idea how to start ane which document are requir, don’t worry. In the next article, I will explain step by step, and you can follow us and bookmark our website for an import-export new update.