The traditional cross-border payment and settlement methods commonly used in B2B cross-border trade are mainly the following.
1) Remittance
Remittance, also known as remittance, is the simplest payment method in which the payee actively remits the money to the payee through a bank or other channels.
2) Collection
Collection refers to a settlement method in which the exporter issues a bill of exchange with the importer as the payee in import and export trade and entrusts the exporter’s bank to collect the payment from the importer through its branch or agent bank on the importer.
Collection is a reverse exchange because in collection, the documents and the transmission of documents as settlement tools are in the opposite direction of the flow of funds. In addition, collection is also a commercial credit. The bank handles it completely according to the instructions of the seller. Whether the bank can receive the payment depends on the credit of the buyer.
3) Letter of credit
A letter of credit (L/C) is a written document in which a bank (issuing bank) pays a third party (beneficiary) or its designated party based on the specified documents in accordance with the requirements and instructions of the applicant or on its own initiative and in compliance with the terms of the letter of credit. That is, a letter of credit is a written document issued by a bank that conditionally promises to pay.