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    Thread: What are The Differences Between Payment Methods In International Trade ?

    1. #1
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      Default What are The Differences Between Payment Methods In International Trade ?

      There are More Payment Methods we can use it in International Trade Such as :

      1- Cash In Advance .
      2- Open Account .
      3- Documentary Collections .
      4- Documentary Credits .


      Please Explain The Differences Between The Mentioned above Four Methods of Payments which we can use its In International Trade .


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      What are The Differences Between Payment Methods In International Trade ?
      yes these are all different ways of making payment in international trade, and some are a bit riskier than others
      1. Open account: this way of payment is a bit riskier to the sellers why because the seller will first have to set the goods to the buyer, before making payment, though people dont perform this anymore except in some exceptional situation, because there must be A high degree or trust between the buyer and the seller. for these to happen.
      2. Cash-in-Advance: when it comes to cash in advance a seller can avoid credit risk because payment is received before the buyers of the goods becomes the sole ownership.


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      Default Re: What are The Differences Between Payment Methods In International Trade ?

      All of these terms are used for different purposes like,

      1- Cash In Advance, For the exporter, this is the most preferred and advantageous method of a trade as they get paid in advance and no risk left behind for him instead of quality of product. Buyers have to pay before they receive the goods and for buyers, this is the least preferred way of payment. consumers do it every day while purchasing online, this method is preferred by exporter/company because,
      • The new relationship with the buyer.
      • No strong credit history of the buyer.
      • The product is rare that you are selling.
      2- Open Account is a sale where the goods are shipped and delivered before payment is due means when company or manufacturer get the order there they ship the product to the customer without payment and payment become due thereafter as agreed between both parties. Obviously, this option is the most advantageous for the importer/customer as they get the product without payment this is also important for the manufacturer or for the shipper in terms of cash flow and cost, but it is consequently the highest risk option for an exporter. Usually, this payment method is used when,
      • Relations are well established with buyers.
      • Buyer is a multinational and have strong buying power.
      • Smaller value exports.
      3- Documentary Collections is a transaction in which exporter handover the collection responsibility to the bank and bank send the documents to the importers bank and this way payment of exporter remain secure and importer cannot get the good released without paying the invoice in full and all related charges. this is the eldest and secure way of exporting things to other countries.

      4- Documentary Credits In this method bank guarantee that protect both buyer and supplier to fulfill their commitments and it requires a binding and compliance of that binding is needed which a bank look after in general.

      This is a most complex method and time taking too it was created to secure the mediterain trade, the steps involved are,
      1. Contract is signed between buyer and seller,
      2. Buyer requests a documentary credit be issued.
      3. Buyer's bank verifies buyer's creditworthiness.
      4. Buyer's bank issues documentary credit.
      5. Seller's bank examines documents.
      6. Seller is notified.
      7. Seller verifies documents.
      8. Goods are shipped.
      9. Seller presents documents to his bank.
      10. Seller's bank examines documents.
      11. Seller's bank forwards documents.
      12. Buyer's bank examines documents.
      13. Buyer's bank forwards payment.
      14. Account is debited and documents delivered.
      15. Seller receives payment.

      I Trade Structures, not Noise.


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      Default Re: What are The Differences Between Payment Methods In International Trade ?

      International trade presents a spectrum of risk which causes uncertainty over the timing of payment between the exporter(seller) and importer(foreign buyer), an individual or a company should consider carefully the desired payment method to use.

      The different payment methods for international trade are:

      1.Clean payment method : This is characterized by mutual trust between importer and exporter. In the clean payment method, all shipping , documents, including title documents, are directly handled by the trading parties. Clean payment method is inexpensive and uncomplicated for both parties because the role of banks is limited to clearing funds as required. There are basically two types of clean payments:
      a. Advance payment method : In this method level of risk for exporter is lowest as they get paid before they ship the goods. It has the highest risk for importer.
      b. Open account method : In this method the goods are shipped and delivered to importer before payment is due, usually in 30 to 90 days. It is most advantageous for importer and high risk for exporter.

      2. Documentary collection method : In this method of payment, the exporter entrust the handling of commercial and often financial documents to a bank and give the bank all the necessary instructions concerning the release of these documents to the importer. Collections are subject to specific rules by the specific regulatory body.

      3. Letter of credit : A letter of credit is a written undertaking by the importer's bank, known as the issuing bank on behalf of the importer, promising to effect payment in favour of the exporter up to a stated sum of money, within a prescribed time limit and against stipulated documents. Types of letter of credit include:
      a. Revocable and irrevocable letter of credit
      b. Sight and term letter of credit
      c. Confirmed letter of credit

      4. Consignment sale method : In this type of method, the exporter receives the payment only after the goods have been sold by the importer to the end customer. An international consignment transaction is based on a contractual arrangement in which the importer receives, manages and sells the goods for the exporter and the exporter retains the title to the goods until they are sold. If the goods are not sold then it is returned in the same way to the exporter. Consignment sale I considered the most risky and time taking method of payment for the exporter.


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      Default Re: What are The Differences Between Payment Methods In International Trade ?

      In international trade there are several to make payment, depending on the agreement, those type of payments sometimes favour one party than other.
      Let's take a look at differences between them.

      Cash in advance or advance payment: this is known to benefit the seller the most as it require the buyer to pay some part of the goods, which to me is risky though sometimes this can depend on individual relationship.
      Sometime the seller use his cash to process the good to be exported.

      Open account : this is risky for the seller as the buyer will have to pays when the product is being received.

      Documentary credit : this is when both parties din trust one another, they tend to take legal step, sometimes the banks be the third party between them. For smoothly transaction.


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      Default Re: What are The Differences Between Payment Methods In International Trade ?

      Open account is a type of payment that occurs when a seller ships the goods and all the necessary shipping and commercial documents and does so directly to a buyer who has already agreed to pay a sellerís invoice at a specified. future date. Open account is actually used mainly by the business partners that fully trust themselves and have done business over time.

      VS

      Cash in Advance method is a type of payment system when a buyer sends payment in the agreed currency and through an already agreed method to a seller long before the product is manufactured and/or shipped or arrives, It is done to secure an important shipment to the business involved. When the payment is received, The seller then sends/ships the goods and all the necessary shipping and commercial documents directly to the buyer. This also comes with a large amount of trust, especially for the one paying before seeing the goods.


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      The main trend among the business world today is the emergence of the phenomenon of market Libralism or free markets. Facing these free markets in various countries in the world and business people develop an open economic system. Indonesia as one of the countries that adheres to the system aims to provide great benefits for the Indonesian people in conducting business transactions. "Export and Import" is an international business that can provide currency and non-currency benefits for the Company and the Government.
      These International Trade and Payment Methods are designed to help and enhance understanding and practical knowledge and abilities about the process of international trade, payment methods and strategies to reduce risks, required documents and international regulations that govern them.
      PURPOSE OF TRAINING
      By participating in this in-house training, participants will be able to:
      Understanding the scope of international trade;
      Increasing knowledge and skills in the field of international trade, both in regulation and implementation.
      Manage the administration of the process of international trade transactions;
      Identifying and resolving issues of international trade both in mechanism, payment, and supervision.


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