Payment Options
Cash.
Checks.
Debit cards.
Credit cards.
Mobile payments.
Electronic bank transfers.
How do importers pay exporters?
Funds are received from the importer and remitted to the exporter through the
banks involved in the collection in exchange for those documents. D/Cs involve
using a draft that requires the importer to pay the face amount either at sight
(document against payment) or on a specified date (document against acceptance).
5 Common Payment Methods for International Trade
Cash in Advance.
Documentary Credit or Letter of Credit.
Documentary Collection.
Open Account.
Consignment & Trade Finance.
By and large, credit cards are easily the most secure and safe payment
method to use when you shop online. Credit cards use online security
features like encryption and fraud monitoring to keep your accounts and
personal information safe.11-Oct-2021
What is the best payment terms in export?
5. Cash in Advance. With cash in advance, the exporter can eliminate credit
risk or the risk of non-payment since payment is received prior to the transfer
of ownership of the goods. Wire transfers and credit cards are the most
commonly used cash-in-advance options available to exporters. 22-Dec-2021
What is LC in payment terms?
Letters of Credit
Since the nature of international trade includes factors such as distance,
different laws in each country and the lack of personal contact during
international trade, letters of credit make a reliable payment mechanism.
The ‘International Chamber of Commerce Uniform Customs and Practice
for Documentary Credits’ oversees letters of credit used in international
transactions.
Parties to a Letter of Credit
Applicant (importer) requests the bank to issue the LC.
Issuing bank (importer’s bank which issues the LC [also known as
the Opening banker of LC]).
Beneficiary (exporter).
Types of a Letter of Credit
The letters of credit can be divided into the following categories:
Sight Credit
Under this LC, documents are payable at the sight/ upon presentation of
the correct documentation. For example, a businessman can present a bill
of exchange to a lender along with a sight letter of credit and take the
necessary funds right away. A sight letter of credit is more immediate than
other forms of letters of credit.
Acceptance Credit/ Time Credit
The Bills of Exchange which are drawn and payable after a period, are
called usance bills. Under acceptance credit, these usance bills are
accepted upon presentation and eventually honoured on their respective
due dates.
For example, a company purchases materials from a supplier and receives
the goods on the same day. The bill will be delivered with the shipment of
goods, but the company may have up to 30 days to pay it. This 30 day
period marks the usance for the sale.
Revocable and Irrevocable Credit
A revocable LC is a credit, the terms and conditions of which can be
amended/ cancelled by the Issuing Bank. This cancellation can be done
without prior notice to the beneficiaries. An irrevocable credit is a credit, the
terms and conditions of which can neither be amended nor cancelled.
Hence, the opening bank is bound by the commitments given in the LC.
Confirmed Credit
Only irrevocable LC can be confirmed. A confirmed LC is one when a
banker other than the Issuing bank, adds its own confirmation to the credit.
In case of confirmed LCs, the beneficiary’s bank would submit the
documents to the confirming banker.
Back-to-Back credit: In a back to back credit, the exporter (the
beneficiary) requests his banker to issue an LC in favour of his supplier to
procure raw materials, goods on the basis of the export LC received by
him. This type of LC is known as Back-to-Back credit.
Example: An Indian exporter receives an export LC from his overseas client
in the Netherlands. The Indian exporter approaches his banker with a
request to issue an LC in favour of his local supplier of raw materials. The
bank issues an LC backed by the export LC.
Transferable Credit: While an LC is not a negotiable instrument, the Bills
of Exchange drawn under it are negotiable. A Transferable Credit is one in
which a beneficiary can transfer his rights to third parties. Such LC should
clearly indicate that it is a ‘Transferable’ LC.
Is there a fee for a letter of credit?
The bank charges a fee for issuing a letter of credit. The fees for a letter of
credit depends on several factors like the risk amount and the type of letter
of credit.
How does a letter of credit help the purchasers?
Usually, a letter of credit supports a beneficiary or a seller in an exchange
agreement where the bank will make sure that the seller receives the
amount from the purchaser or from the issuing bank itself.
However, the letter of credit arrangement also assists a purchaser in
certain circumstances such as if the purchaser makes a payment to the
seller for an order and the seller does not deliver the order on time. In such
a situation, the purchaser will get paid with the money that was spent by
him or her with the help of a letter of credit. Hence, this way, the purchaser
will get a refund.
How does a letter of credit help the sellers?
When the buyer cannot pay the full outstanding amount, the bank that
issues the letter of credit will need to make the payment to the seller.
Sometimes, the seller can select a banker, and that banker will have to
make the payment. If a letter of credit is transferable in nature, then the
seller can choose another party to make the payment.
When does a seller or a beneficiary receive the payment
from the bank?
In a letter of credit facility, the seller or beneficiary will get the payment from
the bank only when the seller complies with the terms laid down in the letter
of credit document. When the delivery is made on time, he/she will get
relevant documents to prove that the delivery was made. These documents
will be sent to the bank to meet the bank requirements. The bank will then
need to pay the letter of credit without fail.
What type of collateral is required to open a letter of
credit?
The bank issuing the letter of credit will require collateral depending on the
strength of the applicants’ finances or even a fixed deposit as collateral.
The final decision of the bank to enter into a transaction is made according
to a set of criteria.
INTERNATIONAL PAYMENTS, PAYMENT
METHODS, AND BANKING
The suitability of various payment types all over the world depends
on the economic condition and records of a country. While some
countries prefer to transact via local bank transfers, other countries
choose to opt credit or debit cards to make payments.International
payments are widespread nowadays. That’s why one needs to know
all possible payment methods and banking methods.
Here we’re listing out some options preferred to make international
payments:
1. Bank Transactions
Most of the countries prefer to transfer via banks because it is
considered highly protected regarding online banking. An individual
can conveniently buy anything online via net banking. All you need
to do is to register and verify yourself with a particular bank to
perform internet banking. While performing a transaction, you
would be asked for some code that will be provided only to you so
that a safe operation can be accomplished.
2. Pre-paid & Local Cards
A card i.e. prepaid holds a value which is used to make a payment.
Usage of the local card is similar to that of an international card.
Bank card is i.e. transacting via bank; so a verification message is
sent at the time of the transaction to authenticate the transfer
process.
3. Electronic Wallets
These are famous as E-wallets. These wallets are basically digital
wallet that holds funds as well as private information. This wallet is
not tangible, but it provides more security than a regular physical
wallet. While owning an E-wallet, one has to store all the private and
public transactions and details, which will be used for upcoming
operations. Email address of the user is considered as a reference
address at which all the details about transactions are sent.
4. Direct Credit/Debit
Direct Credit is basically a secure and trustworthy service that avails
industries to pay via E-transfer. There are many industries which
earn high profits while paying salaries through direct credit. Direct
Debit is fundamentally an order given by the user to associated bank
or authority to let an industry collect different amounts from their
respective accounts. It is valid only when the user is getting a notice
to receive amounts as well as transaction dates.
5. International Debit/Credit Cards
Debit, as well as credit cards, offer the best medium to transfer
money. These international debit/credit cards include VISA,
MasterCard, AMEX, Discovery, Diners Club, and JCB, etc.
6. Cash Substitutes
Usually, cash substitutes are considered a favorable option by most
of the people because they find it secured enough. Cash substitutes
come in many forms like gift cards, money order, paper checks and
escrow Etc.
Resources:-
http://www.mastercard.com/gateway/international-payments/
international-payment-types.html
