Payment methods are a concern for many export sellers. Let’s take a look at what foreign trade payment methods are available. What are their advantages and disadvantages and potential risks? At present, international trade mainly adopts three types of payment methods: remittance, letter of credit and collection.
1. Telegraphic transfer
Remittance is divided into pre-delivery telegraphic transfer and post-delivery telegraphic transfer. Pre-delivery telegraphic transfer is mainly used as a deposit, advance payment, etc.; post-delivery telegraphic transfer is to complete the payment by telegraphic transfer of all or part of the balance of the goods after the delivery is completed.
Its advantages are convenience, speed and flexibility. The disadvantage is commercial credit, and its security is worse than that of letter of credit.
2. Letter of credit
Currently, letters of credit generally adopt irrevocable, confirmed and documentary letters of credit. Letter of credit is a payment commitment made by the issuing bank to the beneficiary, which guarantees the beneficiary’s receipt of payment, so it is a payment method that is beneficial to the beneficiary. However, the beneficiary can only get the money when the documents required by the letter of credit are provided in accordance with the provisions of the letter of credit. Therefore, the letter of credit is a conditional payment commitment of the bank.
The letter of credit business is relatively complicated, and generally the existing format is applied with slight changes according to the specific circumstances. After the foreign trade contract is signed, it is necessary to immediately urge the importer to strictly follow the terms of the contract and open a valid letter of credit in a timely and reasonable manner.
As soon as a valid letter of credit is obtained, immediately prepare goods or sign a domestic purchase contract with the factory; if the company is short of funds and the conditions are met, it can take a valid letter of credit to the bank for packaging and loan, or apply to the bank for export documentary credit after obtaining all the documents required by the letter of credit.
The advantage is that it is relatively safe. The disadvantage is that the requirements for documents are relatively strict, and the bank fees are high, which occupies more of the buyer’s funds.
3. Collection
Collection includes D/A acceptance and D/P payment. There is also a trust business under the deferred payment and D/A, that is, the importer obtains the shipping documents from the bank with the trust receipt and picks up the goods at the dock on behalf of the bank.
D/A Documents against payment: For tax refund verification, the difference between D/P and D/A is that D/P must pay for the bill, pay first and then hand over the bill of lading. If the bank releases the bill privately, the bank is responsible; D/A importers pay the bill of lading XX days after accepting the bill of exchange, and can get the bill of lading. If the payment is not made after the deadline, the bank is not responsible.
D/P Documents against payment: It is a method of delivering documents under the documentary collection method, which means that the exporter’s delivery of documents is subject to the importer’s payment, that is, the importer can only collect documents from the collecting bank after payment. It is divided into D/P Sight, which means that the exporter issues a sight bill of exchange, and the collecting bank presents it to the importer. The importer must pay after seeing the bill, and the importer obtains the shipping documents when the payment is paid.
The advantage is that the buyer is more convenient in terms of funds. The disadvantage is that the seller’s collection of foreign exchange is less secure.
The above are three commonly used foreign trade payment methods. I hope it will be helpful to all export sellers.