In international trade business, foreign trade settlement can (usually) only adopt one settlement method, or a combination of two or more settlement methods based on needs, such as different trading commodities, different trading objects, different trading practices, or two or more settlement methods. It may be conducive to the convenience of transactions, or it may be conducive to the safe and timely collection of foreign exchange, or it may be conducive to the proper handling of foreign exchange payments, so let’s learn about it together!
1. Traditional foreign trade settlement method.
(1) Collection.
Entrusted collection, referred to as entrusted collection, is a way for exporters to entrust import banks to collect payments through local banks.
Function: Importers do not need to advance payment in advance, nor do they need short-term advance payment.
Characteristics: It belongs to commercial credit and has high export risk.
(2) Letter of Credit.
Letter of credit is a guarantee of payment. It can be divided into revocable and irrevocable according to its effectiveness; it can be divided into spot and long-term according to its time.
Function: To a certain extent, it solves the conflict of distrust between buyers and sellers, enables both parties to obtain the convenience of bank financing in the process of using letters of credit to settle loans, and promotes the development of international trade.
Features: L/C payment method has low risk and high cost. For exporters, the collection cycle is long, and the risks of soft terms of letters of credit require high document production.
(3) Remittance.
Depending on the different remittance tools used, remittance is generally divided into three methods: mail remittance (M/T), wire transfer (T/T) and bill remittance (D/D).
Features: Advance payment is beneficial to exporters but risky to importers, and vice versa.
2. Combination of foreign trade settlement methods.
(1) Letter of credit and remittance.
Upon mutual agreement, the letter of credit stipulates the actual quantity of the prepaid amount before the goods arrive at the destination (port) or the goods are shipped.
(2) Letter of credit and collection.
The specific method is usually: draw two bills of exchange, part of the payment under the letter of credit is paid with a blank bill, and the balance is attached to the bill of exchange, and is paid at sight or against a voucher in the future.
(3) Remittance combined with bank guarantee or letter of credit.
The buyer pays part of the payment in advance by remittance, and the rest is paid in installments or deferred.
The above introduces the relevant knowledge about common foreign trade settlement methods, as well as the combination of remittance and collection, collection and standby letter of credit or bank guarantee. When conducting international trade business, wire transfer ( T/T) or letter of credit (L/C) settlement method, or a combination of various methods for foreign exchange settlement according to customer requirements. For better transactions, it is necessary to understand the transaction methods.