METHODS OF

PAYMENTS
The volume of trade transactions is gradually increasing in
the international arena. To secure the international trade
payment is particularly very crucial. There are so many
factors that may affect the matter of securing payment for a
transaction. Where by buyers and sellers get to choose or
decide among the different method of payments on how
their transaction to take place on either on a domestic floor
or at an international level.
 It is a legal agreement for exchange of goods, services or
property that are subject of exchange from seller to buyer
for an agreed upon value in money paid or the promise to
pay same.

 It should be clearly stated and precise for both the seller

and the buyer.

 Both the buyer and the seller require a knowledge of the

INCOTERMS – the International Chamber of Commerce .
1. Who is party to the contract?
2. The validity of the contracts.
3. The goods being sold.
4. The purchase price of the goods and the currency in question.
5. The terms of payment.
6. Inspection of the goods if required.
7. Where the goods should be delivered.
8. At what point transfer of title of the goods take place.
9. Any warranty or maintenance conditions associated with the
sale.
10. What supporting documentation and/or certificates are
required.
11. Who is responsible for paying import duties and other taxes.
12. Any contract performance security requirements.
13. What will happen if either of the parties defaults or cancels.
 Cash in Advance

 Documentary collection

 Open account

 Consignment

 Other payments
 Ways

Payment by
Wire Transfer Credit Cards
Cheque
Most secured and preferred cash in advance method.

An international wire transfer is commonly used and is

almost immediate. Exporters should provide clear
routing instructions to the importer when using this
method.

Especially a wire transfer, is the most secure and least

risky method of international trading for exporters and
consequently, the least secure and an unattractive
method for importers.
A variable Cash in advance method.

Exporters who sell directly to foreign buyers may select credit

cards as a viable cash-in-advance option, especially for small
consumer goods transactions. Exporters should check with
their credit card companies for specific rules on international
use of credit cards.

Although exporters must tolerate the fees charged by credit

card companies and assume the risk of unfounded disputes,
credit cards may help the business grow because of their
convenience and wide acceptance.
 A less attractive cash in advance method.

Advance payment using a check drawn on the importer’s

account and mailed to the exporter will result in a lengthy
collection delay of several weeks to months.

Therefore, this method may defeat the original intention

of receiving payment before shipment. If the check is in a
foreign currency or drawn on a foreign bank, the collection
process can become more complicated and can
significantly delay the availability of fund.
 The importer is a new customer and/or has a less-
established operating history.
 The importer’s credit worthiness is doubtful,
unsatisfactory or unverifiable.
 The political and commercial risk of the importer’s
home country are very high.
 The exporter’s product is unique, not available
elsewhere, or in heavy demand.
 The exporter operates on Internet-based business
where the acceptance of credit card payment is a must
to remain competitive.
 Advantages Disadvantages
 Safe and secure.  May lead to loss of
 No credit risk. customers.
 Most desirable and
acceptable option.
 Funds can be used for
business purposes
immediately.
 Quick setup.
 Perfect credit is not
needed.
 Advantages Disadvantages
 Inexpensive method.  Not safe and secure.
 Risk of non-delivery.
 Least attractive.
 Goods shipped not goods
ordered.
 Delay in shipment.
 Importer may change his mind.
 Become insolvent.
 May be unable or unwilling to make payment.
 Trade policies may change resulting in a ban on import or
export of that item.
 Payment is made on the mutually agreed future date,
usually 30-90 days. Thus known as time draft.

 It also helps the importer to sell goods in the local

market and thus make payments to the exporter.
 Riskier for the exporter.
 Importer may refuse to make payment.
 Credit worthiness of importer and his country’s economic
& political situation.
 Exporter can also use date draft to cover his risk
 Advantages Disadvantages
 Has some measure of  The exporter relies
control over documents entirely on the ability
and goods. and willingness of the
 Less expensive than a importer to pay.
documentary credit.  Control of goods is lost
 Give considerable once the bill of exchange
payment warranty. has been accepted.
 Advantages Disadvantages
 A period of credit can be  If the bill is accepted, the
obtained through the importer is legally liable.
use of a promissory note.
 There is no guarantee
 Exporter responsible for that the goods will be
the charges, normally.
received as ordered or on
 Finance can be raised time.
using the goods as
security.
 More convenient and
less expensive than L/C.
Features of Documentary Collections

• Exporter ships the goods to the importer but retains the title
of goods. It is less risky and complicated.

• He shall resent the documents to the remitting bank and

keep a close eye on the financial position of the importer and
his country’s political, economic, and regulatory
environment.

• Banks act as the facilitator. Exporters shall verify that the

negotiating bank may not grant any undue favor to the
importer in case of default.

• Such a mode of payment can only be used in case of an

established trade relationships between an importer and
exporter and in economically stable export markets.
 Also called open credit.

 Involves delivery of your goods or services to the buyer

with an invoice requesting payment at a certain time
after delivery.

 The time given to the buyer to pay is called the credit

term.

 Payment could be due in 14, 30 or 60 days.

 Advantages Disadvantages
 There is no guarantee of payment
 The exporter incurs no and control if the goods are lost.
charges.
 The exporter is exposed to political,
 Increases market economic and country risks.
competitiveness.  It is very difficult to control the cash
flow

 There is a possibility that delays in

the banking system will delay the
transfer of funds.

 When received, payment can be in

the form of foreign cheque that will
have to be negotiated causing
further delay.
 Advantages Disadvantages
 Retains control over the  There is no control over
timing of settlement and the quality of the goods.
the method by which If special documents are
funds are remitted. required, there is no
 Inspection of the goods guarantee that these will
before the payment is be received.
made.
 Payments can be settled
on a monthly or
quarterly basis.
 Under the consignment method, it’s the consignor
(seller) who supplies goods to the consignee (buyer).
The consignor produces or procures items for sale but
uses consignee facilities to display the wares and
handle the sales. The consignee doesn’t pay in advance
for the consignor’s goods. Instead, the consignee pays
the consignor after the sale and keeps a percentage of
the proceeds. The consignee can return unsold stock
to the consignor. The consignor is responsible for
delivering and removing stock.
Consignment payment method is useful if :

 the consignee is reliable.

 the consignee has a good credit history.

 the consignee’s country has economic and political

stability.

 the consignee is the branch office of the main

company.
 Advantages Disadvantages
 Cost savings  Higher good return

 Competitiveness  Non-payment

 Market Penetration  Foreign exchange risk

 Partnership
 Advantages Disadvantages
 Save on inventory costs  Improves cash flow

 Convenience  Liability of goods

 Cash

 Debit

 E-Wallet/Digital Wallet

 Down Payment

 Countertrade
 Advantages Disadvantages
 Widely accepted.  Cash can be lost or
stolen when we carry it.
 Fast and convenient.  Coin are heavy to carry
around.
 Have to exchange
currency when we visit
another country.
 Cannot be used for
online transaction.
 Advantages Disadvantages
 Convenient to carry  Lost card can be used by
around. anyone.

 Quick and easy to use.  Need to top up the card

whenever the stored
value run low.
 Advantages Disadvantages
 Time Saving  Dependent on the
 Security Devices
 Track the Expenditure
 Limited Merchants

 Danger of Losing your

Money
 It is a type of payment made during the onset of the
purchase of an expensive good or service.

The payment typically represents only a percentage of the

full purchase price.
 Advantages
 Allows buyers not to drain
their savings.
 Allows more buyers to buy
which in turn allows more
sellers to sell.
 It induces the exporter or
seller to begin performance
without the importer or
buyer paying the full
agreed price in advance.
Disadvantages
 Lack of immediate equity
 Higher interest rates
 Weakens negotiating
power
 There is a possibility that
the seller or exporter may
never deliver the goods
even though it has the
buyer’s down payment.
There are 6 main variants of countertrade:
1. Barter.
2. Switch Trading.
3. Offset.
4. Counter purchase
5. Buyback.
6. Compensation Trade
 Advantages
 Allow importing country to
export products for which
market might not otherwise
exist
 Allow access to foreign markets
without necessarily setting up
marketing companies
 Gives access to market for
companies that may otherwise
be closed to them
Disadvantages
 Greater uncertainty on the
value of the goods being traded
and uncertainty on the quality
of the goods.
 the value of the deal—the
goods being exchanged, may
be uncertain, causing
significant price volatility.
 Time-consuming
Things to consider when choosing a payment method:

 Privacy
 Service fees
 Transaction costs
 Risk of theft
 Reliance on telecommunications and electrical
infrastructure
 Each payment method has different advantages and
disadvantages. No one type of payment is best. The
best payment method depends on the needs of your
business.
 When choosing payment methods, think about how
their advantages and disadvantages affect your
customers and your business operations.