PAYMENTS

For success in the global highly competitive market, the seller must offer the most comfortable payment terms. We need to find a win-win solution, because the seller is interested in a guarantee of 100% payment, and the customer is interested in the security of the transaction. There are five main methods of payment in international business.

 

Payment in Advance

T/T. This is the most attractive payment option for the exporter. In international trade, bank transfers are the most popular. The development of online payments allows quick transactions. However, a prepayment requirement is not an attractive option for the buyer. Foreign buyers are also concerned that the goods cannot be shipped if payment is made in advance. In this case, the exporter may lose the customer to its competitor, who will offer more interesting payment terms. Our practice is this: 30% prepayment, 70% after loading the goods.

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Letter of Credit

LC. In order to make international transactions as secure as possible, letters of credits were created. Sellers and customers frequently choose this type of transactions for making international purchases. According to this method, the customer finds a bank commitment. Thus, the bank ensures that if all the terms from the seller’s side are met, then the customer will make payment. The state of obligations execution is verified by means of providing the required documents. If the customer wants to get this kind of services, he/she should go to the bank and establish credit that will be further paid. For sellers, such a document gives an additional guarantee in those cases when no trustful credit information about the potential customer can be obtained. For customers, the LC provides protection since until the product hasn’t been shipped, he/she has no payment obligation.

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Documentary Collections

Describing the essence of a documentary collection in a few words, it is mediation in the process of making the purchase. It is a type of transactions in which the seller, two banks, and the customer are engaged. The process looks like the following: the seller addresses to a remitting bank in order to entrust it to collect certain documents that are needed for making a purchase. Then, the bank employees send the documents to the bank the purpose of which is to receive the documents. It is the institution that is entitled to connect with the customer. The release of the documents that were received from the first institution to the customer is its main task. As the customer gets them, he/she can pay for a good. The following stage is when the customer gives funds to the collecting bank. When money is on the bank, it remits them to the first institution. The collection letter contains information about the necessary documents that will allow transferring of title to a particular good. During this operation, these banks serve as facilitators for the clients; nevertheless, this type of services does not imply any verification processes as well as limitations in the cases of non-payment. This procedure is usually cheaper than LC.