Question

There are several basic export payment methods available for international transactions. The amount of trust in the buyer’s ability and willingness to pay is a major factor that determines the method of payment. Over the year’s documentary letters of credit have been considered to be a safe mode of payment in international trade for both exporters and importers.light of the above, discuss the various payment methods that can be used in International Trade

Answer 1

Various types of payment method that can be used in international trade are as follows-

1. Case in advance-cash in advance is a risk-free concept except for consequences associated with potential non delivery of goods by the seller. It is usually a wire transfer or check. All the international wire transfer is more costly & it is often preferred because it is a speedy and does not bear the danger of check not being ignored.it is the fastest way for beneficiary to receive good funds and it is easy to trace movement of funds from bank to bank.

2. The commercial letter of credit-it allows the buyer and seller to contract a trust intermediary,that will guarantee full payment to the seller provided that he has received the goods and complied with the terms of agreed upon. Letter of credit are typically irrevocable, which means that once letter of credit is established,it cannot be changed without the consent of both the parties

3. Consignment method-it is a method of payment which is used in international trade. This method requires that the seller ship to buyer, broker, or distributor, but not receive payment until the goods are sold or transferred to another buyer.

4. Credit card- This is another method of payment through which special lines of credit, that are accessible via credit card,to facilitate substantial purchase and this can be very convenient for both the parties and the seller should confirm the discount percentage, that the bank will charge him for using the service and they should bear in mind that the laws governing domestic credit card transaction differ from those laws which govern the international use of credit card.

5. Mail transfers-mail transfers are those methods which are an order to pay cash to a third party or credit to account of a person who has account with the bank. This is similar to a telegraphic transfer and it can be sent through post.

6. Open accounts-it means that the buyer pays the cost of the goods after goods received by the supplier and this define as a sale where the goods are shipped or delivered before the payment is due.

7.Bank payment obligation is another method which is used in international trade and it is an irrevocable undertaking given by oberligor bank to a recipient Bank to pay specified amount at specific date under the condition of successful electronic matching of data according to an industry wide set of rules.

these are the types of methods which can be used for various payments in international trade.