The payment and collection methods used in cross-border e-commerce B2B business are actually the payment and collection methods used in traditional international trade. At present, there are three main methods for payment and collection in international trade, namely remittance, letter of credit and collection.
1. Remittance
Remittance is the simplest way for both parties to pay for goods, that is, the buyer (importer) remits the payment to the seller (exporter) through the bank according to the terms of the contract. The advantages of remittance are fast, convenient and low cost. However, the risk for buyers is greater when prepayment is made, and the risk for sellers is greater when deduction is made. The parties involved in remittance are the remitter (buyer), the payee (seller), the remitting bank and the receiving bank. There are three payment methods: mail transfer (M/T), telegraphic transfer (TT) and debit (D/D). In cross-border e-commerce B2R business, T/T is the most widely used method.
2. Letter of Credit
A letter of credit (L/C) is a document issued by the issuing bank to the beneficiary (seller) based on the requirements and instructions of the issuer (buyer), promising to pay a certain amount of money and within a certain period of time based on the specified documents. Depending on whether it is accompanied by documents, letters of credit are divided into two categories: documentary credit and clean letter of credit. Currently, documentary credit is mostly used in international trade. A documentary credit refers to a bill of exchange with attached shipping documents, or a letter of credit that pays only based on shipping documents. The general process of its payment settlement is: the trading parties sign a supply contract, the buyer sends the letter of credit for payment from the local bank (issuing bank) to the bank in the seller’s location, the seller ships the goods according to the supply contract between the two parties and sends the shipping documents (such as ocean bills of lading, railway or air waybills) to the bank in the seller’s location. The buyer will send the shipping documents and goods to the buyer. After receiving the shipping documents and goods, the buyer will notify the bank in the seller’s location (usually the bank of the issuing bank or the agent bank) to pay the seller according to the terms of the letter of credit.
3. Collection
Collection means that the creditor (seller) opens a debt certificate, such as a bill of exchange, promissory note, check, etc., and entrusts the local bank to pay the debtor (buyer). A settlement method for collecting payment. Collection is divided into clean collection and documentary collection. Currently, documentary collection is usually used in international trade. Documentary collection is further divided into D/P and D/A. If D/P is used, the seller’s delivery of documents is subject to the buyer’s payment, that is, when the seller entrusts the local bank to collect payment from the buyer, he instructs the local bank to hand over the shipping documents only when the buyer pays off the goods. D/A means that the seller’s delivery of documents is subject to the buyer’s acceptance on the bill of exchange, that is, the seller issues a usance bill of exchange after shipping in accordance with the contract, and presents it to the buyer through the local bank together with the shipping documents. After the buyer verifies that it is correct, he will immediately accept the bill of exchange. After the buyer accepts the bill of exchange, he can collect the shipping documents from the bank and pay on the due date of the bill of exchange.